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 user 2009-11-24 at 10:25:37 am Views: 50
  • #22995

    Hewlett-Packard Co. is scheduled to report its fiscal fourth-quarter earnings on Monday after the market closes. Below is a summary of key developments and analyst commentary related to the period.

    OVERVIEW: Things are looking up for the personal computer business heading into the holiday season, which is good news for HP, the world’s No. 1 PC maker. But challenges in other areas, particularly printers and printer ink, continue to weigh on the big technology company. HP is also the world’s top printer maker, and ink is a cash cow.Revenue in HP’s printer and ink division has declined in each of the last four quarters. Some of the decline can be attributed to lower business spending on new technology, as well as a shift toward cheaper generic ink. But HP says currency fluctuations and changes in the way the company manages its resellers’ inventories are also to blame.Cathie Lesjak, HP’s chief financial officer, said in August that she expects HP’s supplies business to improve over the next few quarters as some of those issues are worked out.

    HP is undergoing a big transformation to make itself less dependent on the PC and printer businesses, particularly through its $13.9 billion acquisition of Electronic Data Systems Corp., a company that competes with IBM Corp. and has made HP’s technology services group the company’s biggest revenue and profit generator.

    HP is also muscling into Cisco Systems Inc.’s computer-networking turf with its $2.7 billion takeover of 3Com Corp. announced earlier this month.Deep cost cuts have accompanied the changes. HP is eliminating 24,600 jobs as part of the EDS acquisition, and hasn’t addressed whether there will be layoffs at 3Com, which has 5,800 employees worldwide. In May the company announced a separate round of 6,400 cuts involving workers from the product divisions.

    BY THE NUMBERS: On Nov. 11, HP announced preliminary fourth-quarter earnings of 99 cents per share, versus 84 cents per share in the year-ago period. Excluding items, HP said it earned $1.14 per share. Preliminary revenue fell 8 percent to $30.8 billion.Analysts polled by Thomson Reuters expect profit of $1.13 per share excluding items, and $30.4 billion in revenue for the quarter ended Oct. 31.

    ANALYST OPINION: Dinesh Moorjani, an analyst with Broadpoint AmTech, wrote in a recent note to clients that he expects investors to focus on HP’s printer and ink division, where he expects a “significant rebound in growth” as depressed demand picks up.”We believe inventory de-stocking by customers is largely complete, and that revenue should grow in line with end demand” in the first half of 2010, Moorjani wrote.WHAT’S AHEAD: For fiscal 2010, HP predicts profit of $4.25 to $4.35 per share on revenue of $118 billion to $119 billion.

    STOCK PERFORMANCE: HP’s stock gained 9 percent during the quarter, and has risen since to a high of $51.43 on Nov. 17, a level the stock hasn’t seen since late 2007.

     HP Has Printer Group ‘On the Attack’
    Services may have driven Hewlett-Packard to a fiscal fourth-quarter profit, but company executives said they look forward to its printer business pushing forward to increased 2010 growth.

    HP earned $2.4 billion profit on $30.8 billion in revenue for the fiscal fourth quarter of 2009 ended Oct. 31. Aside from a $2 million dip in corporate investments, all of HP’s businesses showed sequential growth; on a year-over-year basis, however, HP’s services business jumped by 65 percent, with its technology solutions business also demonstrating a 20 percent increase. All of HP’s other businesses fell.”In the fourth quarter, HP continued to execute, delivering solid performance while building for the future,” chief executive Mark Hurd said during a conference call with analysts. The economy “remains challenging,” he said, although HP “expects to outperform the market as growth returns.”

    The U.S. and Chinese markets performed well, although chief financial officer Cathie Lesjak said that Europe had not shown consistent signs of improvement.HP’s outlook, however, was lower than what might be expected during the holiday season. HP expects revenue of between $29.6 billion and $29.9 billion for the fourth quarter, and earnings per share of between 90 and 92 cents.

    What has been the company’s core businesses of PCs, printers and servers have become more diversified with the August 2008 acquisition of EDS, however, and will become even more so if shareholders and regulatory agencies approve the $2.7 billion purchase of 3Com, whose networking products will be used in data centers.

    HP’s profits were led by its services business, although analysts queried Hurd and Lesjak on the more traditional PC and printer businesses. On the latter, Hurd said that although printer units declined by 20 percent, and that supplies revenue was down percent, the Imaging and Printing Group “was poised for recovery and poised for attack”. Even during the downturn, however, customers were buying ink even as their printer purchases slowed.”I want to be clear,” Lesjak added. “We have IPG on the attack, and if we have to trade off some operating dollars for the growth we will.”

    HP’s business increased unit shipments by 8 percent even as revenue fell by 12 percent. Notebook revenue fell by 8 percent, while desktop revenue decreased by 12 percent. The number of notebooks sold increased by a sizeable 17 percent, however, indicative that the average selling price of notebook, which includes netbooks, continues to drop.

    Those price drops could conceivably slow, however. When asked, HP executives acknowledged that component pricing had an “uptick” in its fiscal fourth quarter, and could prove to be a “challenge” in the first fiscal quarter, Lesjak said.HP’s software revenue dropped 16 percent to $967 million, while its financial services business reported revenue of $726 million, up 5 percent from a year ago.