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 user 2009-05-19 at 12:37:22 pm Views: 126
  • #22230
    Latest Economic Signal: H-P Toner Error
    worst might be over for personal-computer sales. But for technology
    bellwether Hewlett-Packard, the printing division could still look ugly
    when the Palo Alto, Calif., company reports fiscal second-quarter
    earnings Tuesday afternoon. Such a trend could continue to pinch H-P
    for a few more quarters.Analysts anticipate a profit of 86 cents a
    share, about a penny lighter than a year earlier. With its global span
    and products that touch consumers and businesses alike, H-P’s results
    and management’s comments about them will be a meaningful read on the
    broader economy.Though there are signs the PC market has stabilized,
    worries persist that H-P’s printing business, which generates roughly a
    third of the company’s profit, continues to struggle. That is an
    indication that even as the economy is trying to pull itself up,
    consumers and corporate purchasing managers continue to keep their
    pocketbooks mostly closed.H-P typically sells its printers at a loss,
    making up the difference with high-profit-margin ink that consumers
    must continually buy. For that reason, Wall Street has looked at ink as
    a buffer that provides a stable income stream for H-P in lean times.
    Printing-segment revenue had risen at high single-digit rates for
    years.Alas, no more.

    Amid massive U.S. job losses, business
    bankruptcies and other misery, H-P’s so-called consumable sales plunged
    7.2% in the fiscal first quarter, one reason H-P missed Wall Street’s
    revenue estimates by $3 billion, or 10%.Going into Tuesday’s
    second-quarter report, U.S. unemployment keeps rising, while businesses
    keep cutting costs. The upshot: Businesses will likely print less and
    consumers “won’t be printing an album of photos with expensive color
    ink at home,” says Bill Shope, a Credit Suisse Group analyst. “If the
    printing business continues to deteriorate, it will be difficult for
    H-P to hit their targets this year.”

    Brian Alexander, an analyst
    at Raymond James & Associates, estimates sales declines in H-P’s
    consumable business “will accelerate this quarter — it could be down
    in the low- to midteens — and will probably stay negative the rest of
    the year.”There is a “very tight correlation,” he says, between
    consumables and macroeconomic indicators such as employment and
    information-technology spending. “If more people are employed and
    there’s economic growth, there are more supplies bought.”And vice


    H-P Expected To Weather Storm Despite Sales Drop
    improved expectations follow recent industry data points that suggest
    demand has tracked greater than we previously expected in H-P’s printer
    supplies and outsourcing services businesses,” Reid wrote. “With
    strength in these areas, offset by weakness in servers and storage, we
    expect a favorable operating margin mix shift to result in an Apr
    quarter EPS beat.”PC sales are still expected to be a weak point for
    the company. This has typically been H-P’s largest business, accounting
    for more than one-third of the company’s total revenue base in its most
    recent fiscal year.

    Moskowitz of J.P. Morgan expects sales in
    the personal systems group, which includes PCs and laptops, to fall
    more than 23% in the second quarter from the same period last year.”We
    expect H-P to benefit from the better than expected PC market trends
    and the mix shift to the consumer,” he wrote. “The benefit stands to be
    modest though, as better than expected units stand to be offset by
    lower ASPs [average selling prices.]“Revenue from H-P’s enterprise
    systems and software businesses is also expected to drop sharply.”We do
    not expect H-P’s enterprise hardware business to be an outlier when it
    comes to server and storage trends,” Moskowitz wrote.Amit
    Daryanani of RBC Capital Markets said he expects H-P’s recent
    cost-reduction efforts to show “EPS resiliency.” He said investors are
    likely to focus on the results from the printing side as well as the
    company’s guidance.”While we don’t believe we are out of the woods yet
    from a macro perspective, we think conditions are incrementally more
    positive,” he wrote in a note Monday.