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 user 2009-11-24 at 10:26:25 am Views: 35
  • #22996

    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

    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.

    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’
    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.

    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.