Bloomberg News

HP Boosted by PCs as Whitman Seeks Growth in Other Units

August 21, 2014

Hewlett-Packard Co. CEO Meg Whitman

Meg Whitman, Chief Executive Officer of Hewlett-Packard Co. Photographer: David Paul Morris/Bloomberg

Hewlett-Packard Co. (HPQ:US) Chief Executive Officer Meg Whitman is benefiting from a surge in personal-computer sales. Now she needs to show she can make progress in other businesses, including software and services.

The Palo Alto, California-based technology provider yesterday posted its first sales growth in 12 quarters, with revenue rising 1.3 percent to $27.6 billion for the fiscal third quarter ended July 31. Profit excluding certain items was 89 cents. Analysts on average were estimating profit of 89 cents a share and sales of $27 billion, according to data (HPQ:US) compiled by Bloomberg.

Yet even as Hewlett-Packard’s personal-computing business experienced a 12 percent revenue jump for the quarter, sales across the company’s other divisions -- including services, printers and software -- either declined or clocked in at less than 2 percent growth. The uneven results illustrate the challenges Whitman still faces in turning around the technology giant, even after moving to rev up growth with new products and cutting jobs to trim costs since she took over as CEO in September 2011.

“The company is in this longer-term shift toward services and software, and neither of those divisions grew,” said Bill Kreher, an analyst at Edward Jones, who has a hold rating on the stock. “This isn’t necessarily consistent with the long-term plan.”

Turnaround Strength

In a conference call, Whitman said Hewlett-Packard has become a stronger company because it has been forged in “the adversity of the turnaround.” She acknowledged there are some declining and flat businesses, and said there are opportunities for growth, especially in PCs where “we believe we can continue to gain share.”

Hewlett-Packard’s stock rose 5.4 percent to $37 at the close in New York, putting the shares at their highest level since July 2011. The stock is up 32 percent this year.

Whitman has stabilized Hewlett-Packard and returned the company to profit over her tenure. She has focused on reducing costs and introducing new products like water-cooled servers and 3-D printers. Whitman, who was recently named chairman after activist investor Ralph Whitworth stepped down for health reasons, in May said she was paring as many as 16,000 more employees, on top of 34,000 already announced.

Sustained sales growth remains elusive. Hewlett-Packard competes with EMC Corp., Oracle Corp., Dell Inc. and others, all of which are facing young competitors that are fielding cheaper and simpler technologies. One of Silicon Valley’s oldest companies, Hewlett-Packard’s product range spans PCs to home printers to software, yet the company has fallen behind in mobile computing at a time when consumers have migrated to smartphones and tablets made by Apple Inc. (AAPL:US) and Samsung Electronics Co.

Net Income

Net income for the quarter fell 29 percent to $985 million, or 52 cents a share, compared with $1.39 billion, or 71 cents, a year earlier. The company took a $649 million restructuring charge in the quarter.

For the current quarter, Hewlett-Packard projected profit excluding items of $1.03 to $1.07, in line with analysts’ average estimate of $1.05, according to data compiled by Bloomberg.

Corporate spending on PCs has also helped lift the results of other technology companies recently. Intel Corp. last month forecast revenue that exceeded analysts’ estimates for the current quarter, while Microsoft Corp. said it’s seeing signs of improvement in the PC market. Worldwide PC shipments slipped less than projected in the second quarter as businesses replaced older computers, researcher IDC said in July.

PC Boost

“Where they really stood out was on their PC side,” said Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co., who has a buy rating on the stock. “The PC tailwind came in in this quarter, so I think we’ve got another quarter or two in that.”

Hewlett-Packard’s personal-systems group, which sells PCs, saw revenue rise to $8.65 billion in the quarter. Whitman said PCs sold strongly across the board in most regions, excluding China and Russia, though demand in China was good for commercial PCs.

Revenue growth in the company’s other divisions was weaker or declined, with some sales affected by “geopolitical instability in Eastern Europe,” the CEO said.

Sales in the company’s enterprise-computing group, which makes servers and other gear that is sold primarily to businesses, rose 1.9 percent to $6.89 billion from a year ago. Software revenue fell 5 percent to $959 million.

The company announced a water-cooled server in June that will let it chase sales in a part of the market where it hasn’t had products before.

Revenue in the enterprise-services unit, which provides consulting to corporations, decreased 6.4 percent to $5.59 billion. The printer business reported sales declined 3.8 percent to $5.59 billion.

To contact the reporter on this story: Jack Clark in San Francisco at jclark185@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson


Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • HPQ
    (Hewlett-Packard Co)
    • $35.47 USD
    • 0.50
    • 1.41%
  • AAPL
    (Apple Inc)
    • $100.75 USD
    • 0.64
    • 0.64%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus