Strong dollar hurts HP’s earnings

The world’s No. 2 PC maker is preparing to split into two listed companies this year

Hewlett-Packard Co reported flat or lower quarterly revenue in all of its operating units on Tuesday, and forecast full-year earnings well below analysts’ expectations due to a strong US dollar.

Its shares tumbled 6.7 per cent in after-hours trading.

The world’s No. 2 PC maker, which has struggled to adapt to the new era of mobile and online computing, is preparing to split into two listed companies later this year, separating its computer and printer businesses from its faster-growing corporate hardware and services operations.

“Revenue was a little short on the top end, the guidance for the second quarter was a little below where the consensus was,” said Daniel Morgan, a portfolio manager at Synovus Trust Co.

“Let’s wait till October, see if this split is really going to create the shareholder value that [CEO] Meg Whitman is hoping for.” HP has not projected the total cost of its separation plan, but it said on Tuesday it will take charges

Going under

6.7 % Firm’s shares tumbled by this on Tuesday.

of $1.3 billion (Dh4.7 billion) this fiscal year and $500 million next year to pay for the move.

Extra caution

On top of that, it forecast an extra $300 million this year in capital spending related to the plan, plus $950 million in foreign tax expenses, although it said more than half of the tax cost could be recuperated. The combined effect of those separation costs and the hit from the strong dollar will almost halve HP’s free cash flow this fiscal year to about $3.5 billion to $4 billion, down from a forecast three months ago of $6.5 billion to $7 billion.

Palo Alto-based HP follows Microsoft Corp and International Business Machines Corp in seeing a significant negative impact from the strong dollar.