Bloomberg News

Hewlett-Packard Sales, Profit Top Estimates on Server Demand (2)

February 21, 2014

Hewlett-Packard CEO Meg Whitman

Chief Executive Officer Meg Whitman is trying to reshape the 75-year-old company, which is headed for a third straight annual sales decline as the personal-computer market shrinks. Photographer: Jacob Kepler/Bloomberg

Hewlett-Packard Co. (HPQ:US) reported fiscal first-quarter sales and profit that topped analysts’ estimates as the personal-computer maker won new orders for corporate machines and servers to run data centers.

Profit excluding certain costs in the period ended Jan. 31 was 90 cents a share on revenue of $28.2 billion, the Palo Alto, California-based company said yesterday in a statement. Analysts had on average predicted profit of 84 cents and revenue of $27.2 billion, according to data compiled by Bloomberg.

Chief Executive Officer Meg Whitman is trying to reshape the 75-year-old company, which is headed for a third straight annual sales decline as the PC market shrinks. Hewlett-Packard’s sales of servers, the powerful machines that store and dish out data, may be benefiting as International Business Machines Corp. exits part of the market by selling a unit to Lenovo Group Ltd.

“That could result in a dynamic where HP could pick up more share,” said Amit Daryanani, an analyst at RBC Capital Markets. He has the equivalent of a hold rating on the company’s stock. “In servers I think they’ve done slightly better but nothing phenomenal.”

Hewlett-Packard shares (HPQ:US) declined 1.3 percent to $29.79 at the close in New York, leaving them up 74 percent in the past 12 months, compared with a 22 percent gain in the Standard & Poor’s 500 Index.

‘More Confidence’

“The restructuring program is very much on track and customers and partners have a lot more confidence in HP than they did two and a half years ago,” Whitman said in a phone interview.

First-quarter net income rose 16 percent to $1.43 billion, or 74 cents a share, from $1.23 billion, or 63 cents, a year earlier, the company said. Revenue slipped less than 1 percent from the $28.4 billion in the year-ago period.

While earnings are improving, investors are seeking further evidence that that the company can deliver sustained revenue growth before they buy more of the stock, said Bill Kreher, an analyst at Edward Jones & Co.

“These results justify the recent run-up,” said Kreher, who also rates the stock a hold. “While earnings are starting to turn, investors are looking for top-line improvements.”

Second Quarter

Profit before certain costs in the second quarter, which ends in April, will be 85 cents to 89 cents a share, the company said yesterday. That compares with the average analyst estimate for 89 cents.

PC shipments fell for a seventh straight quarter in the last three months of 2013, dropping 6.9 percent, as consumers continued to choose smartphones and tablets over laptops, according to researcher Gartner Inc. Hewlett-Packard had the No. 2 worldwide spot by unit sales, with 16.4 percent of the market -- even as its shipments dropped 7.2 percent from a year earlier.

Whitman, who took over at Hewlett-Packard in September 2011, has been working to turn around one of Silicon Valley’s oldest companies, whose product range spans from PCs and home printers to the servers, networking gear and software used by corporations. Hewlett-Packard has fallen behind in mobile computing, where consumers have migrated to smartphones and tablets made by Apple Inc. and Samsung Electronics Co.

Business PCs

First-quarter revenue in the personal-systems unit, which includes PCs, rose 3.6 percent to $8.53 billion, boosted by sales of business computers. Printing-division sales dropped 2.2 percent to $5.82 billion.

In the PC market, “the rate of decline is slowing,” Whitman said in the interview. “Commercial notebooks was a real bright spot.”

The enterprise-computing unit, which includes servers, had sales of $6.99 billion, little changed from a year earlier. Within that division, revenue from servers based on Intel Corp. technology rose 6 percent. Storage sales were unchanged, while networking revenue rose.

The enterprise-services division posted a 7.3 percent decline in sales. That business was hurt as some customers reached the end of their contracts and didn’t renew, Whitman said on a conference call. She is urging her sales force to focus more on signing up new customers and less on preserving existing relationships, she said.

“This is a big ship to turn around and we need to move faster,” Whitman said.

In corporate computing, Hewlett-Packard competes with EMC Corp., Oracle Corp., IBM and Dell Inc., all of which are confronting new challenges from startups offering simpler and cheaper technology.

‘Multiquarter Fixes’

“The issues they are facing are multiquarter fixes,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York. “You’re not going to see some data points in a quarter or two to give you comfort.”

Lamba has the equivalent of a hold recommendation on the stock, a rating shared by 63 percent of the analysts covering Hewlett-Packard, according to data compiled by Bloomberg.

Whitman is also dealing with fallout from Hewlett-Packard’s $8.8 billion writedown of its 2011 acquisition of Autonomy Corp., an agreement struck by her predecessor, former CEO Leo Apotheker. The company said the writedown was triggered by accounting improprieties at the software maker. Former Autonomy CEO Michael Lynch denied the accusations.

Shareholders sued Hewlett-Packard over the writedown, alleging its board and Whitman ignored warnings of accounting irregularities. The company has begun talks with shareholders’ lawyers on a possible settlement of the litigation, a person familiar with the matter said earlier this week.

Hewlett-Packard has provided information to the U.K. Serious Fraud Office, the U.S. Department of Justice and the Securities and Exchange Commission regarding accounting improprieties, disclosure failures and misrepresentations by Autonomy, before and during the acquisition, the U.S. company said in filings.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Reed Stevenson at rstevenson15@bloomberg.net


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Companies Mentioned

  • HPQ
    (Hewlett-Packard Co)
    • $37.99 USD
    • -0.17
    • -0.45%
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