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Sales Worries Hurt Hewlett-Packard Shares
NEW YORK (Feb. 20) – Shares Of Hewlett-Packard Co. dipped Friday amid concerns that slower growth in sales of printer supplies may reflect the stiff challenge to its leading status in the global printer market.
HP shares eased 83 cents, or about 3.5 percent, to $23.01 in early trading on the New York Stock Exchange, where it was the biggest percentage loser among blue chip stocks before recovering slightly. At midday, it was off 72 cents, or 3 percent, at $23.14.
Late Thursday, HP said its fiscal first-quarter profit rose 30 percent, fueled by gains in personal computer sales.
But in the imaging group, HP’s biggest segment, sales of printer supplies such as ink cartridges rose only 8 percent, lower than the growth rate of around 15 percent in recent quarters, according to analysts. Overall imaging and printing revenue rose to $5.91 billion, up 6 percent.
“Revenues were light in Imaging and Printing … which drives so much of the cash flow and the profits of the company,” said Cross Research analyst Shannon Cross. “One quarter doesn’t make a trend, but it’s something we need to watch.”
Printer makers typically sell the machines at little or no profit in hopes of gaining a long-term customer who will buy ink, toner and paper, which earn high profit margins.
While the market is still growing, the field is growing crowded, analysts say. HP now must contend with Dell Inc., in addition to its long-time rivals Lexmark International Inc. and Canon Inc.
Last month, Dell said it would partner with Samsung Electronics Co., Xerox Corp. and Eastman Kodak as it expands its nascent imaging business.
SLOWER GROWTH DUE TO INVENTORY ADJUSTMENTS
In a conference call with Wall Street analysts and reporters, HP Chief Financial Officer Bob Wayman attributed the slower supplies growth to improvements in a supply system that allows retailers to “operate with a little less inventory.”
“We believe we’re positioned with channel inventory where we now want it,” he said. “So that’s kind of a one-time effect. I would think supplies growth should recover.”
Prudential analyst Steven Fortuna applauded the overall results but said HP will increasingly find itself in skirmishes in each of its key segments now that Dell is beefing up its offerings in the printing arena.
“It is a tough battle facing IBM in Enterprise Systems and Services as well as Dell in PCs,” he said in a note to clients. “Longer-term, we remain concerned that Dell could become a more significant player in the printer market.”
HP CEO Carly Fiorina took a swing at Dell, noting that while Dell has sold 2 million printers in 9 months, HP sells 1 million printers every week.
Analyst Cross said the threat from Dell, which has a track record of entering markets and grabbing market share, lies in the future as it expands its reach and cuts prices.
“Dell’s printer sales will become more substantial during 2004 as it fills out its printer line through partnerships,” she said. “(Dell may partner) with engine manufacturers that would allow it to retain higher margins and potentially offer lower ink/toner prices.”
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