HP FACES INK AND TONER WORRIES IN Q4

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http://www.businessweek.com/ap/financialnews/D9C41CCG0.htm
HP FACES INK AND TONER WORRIES IN Q4
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.

http://www.pcmag.com/article2/0,2817,2356275,00.asp
 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.

[Author]

November 24, 2009 at 10:26 AM