PC focused Hewlett-packard swallows bitter pill
THE roadblocks to Hewlett-Packard’s (HP) turnaround are mounting. Meg Whitman, hired as CEO almost two years ago to revive the Silicon Valley computer maker, had said revenue would rise next year as personal-computer (PC) sales stabilised. She scrapped the prediction on Wednesday.
PC shipments are slumping for longer than Ms Whitman had foreseen, there is weak demand for enterprise hardware and services, and Dell and other competitors are siphoning away sales with aggressive pricing. Cost-cutting is also reaching its limit amid a move to cut 29,000 jobs.
Ms Whitman is still facing hurdles after three years of write-offs, management upheaval, strategy shifts and slowing growth.
“The signs are clear that 80% of their business will have headwinds in fiscal 2014 — that’s PCs, printers, and services,” said Abhey Lamba, an analyst at Mizuho Securities USA, who rates the shares “underperform”, or sell. “Management had some bullish expectations about the environment and they’re not materialising now.”
Ms Whitman took the helm in 2011, asking investors to be patient and scaling back her predecessor’s growth projections that she said were too cheery.
The stock had risen 78% this year on signs a turnaround may be taking hold.
Results for the financial third quarter showed revenue declines across most of Hewlett-Packard’s businesses, and the company’s forecasts for the period through October fell short of some analysts’ estimates.
Earnings excluding some items will be 98c to $1.02 a share for the fourth quarter through October, the company has said.
Analysts were predicting $1.01 on average, according to data.
For the 2013 financial year, earnings will be $3.53 to $3.57 a share, compared with the company’s previous forecast of $3.50 to $3.60.
Hewlett-Packard shares fell 7.1% to the equivalent of $23.35 in Germany yesterday and closed down 1.8% at $25.38 in New York on Wednesday.
Speaking to analysts on Wednesday, Ms Whitman cited a “weak enterprise spending environment”, with sales challenged in Europe and China. Pointing to difficulties in the company’s enterprise and PC businesses, Ms Whitman now projects that “year-over- year revenue growth in fiscal 2014 is unlikely”. She had previously said she expected sales growth in the next financial year.
PC shipments fell in the second quarter for a fifth successive period, sliding 11%, market researcher Gartner said last month. Consumers are increasingly opting for tablets instead of desktops and notebooks, and businesses are holding on to their old machines for longer.
For the third quarter which ended last month, the company’s sales fell 8% to $27.2bn, compared with analysts’ average estimate for $27.3bn.
Earnings excluding some items were 86c per share, compared with the average projection of 87c. Net income was $1.39bn, compared with analysts estimates of $1.19bn.
Sales in the group that includes PCs fell 11% to $7.7bn. Hewlett-Packard is missing out on three of the biggest trends in technology: the rise of smartphones and tablets, and businesses moving to online computing services from on-site hardware and software, said Bill Kreher, an analyst at Edward Jones & Co, who rates the shares a “sell”. “If HP could just convince the Street that they’re going to participate in any one of these trends, it would lead to a resurgence in revenue and profit growth,” Mr Kreher said.
The enterprise division, which includes computer servers, datastorage devices and networking equipment, reported revenue shrank 9.4% to $6.79bn in the third quarter, while earnings before tax fell 19.5% to $1.03bn.
Declines in the high-end servers and lucrative technology support services sapped profits, the company said.
Ms Whitman is shaking up her team again, seeking to rescue the turnaround effort by promoting chief operating officer Bill Veghte as head of the enterprise group, replacing Dave Donatelli.
Henry Gomez, chief of communications, is replacing Marty Homlish as chief marketing officer. Mr Donatelli is leaving after prolonged tensions with Ms Whitman, said people with knowledge of the matter.