HP Earnings Signal Challenges Ahead of Breakup

PC revenues fell 13% and printer revenue was down 9% in the second quarter.
Matthew HellerAugust 21, 2015

In its last financial report before it splits itself into two, Hewlett-Packard said revenue fell 8% in the third quarter as the PC and printer businesses that will form one of the new companies continued to struggle.

The split is expected to take place Nov. 1, when HP will transform into Hewlett Packard Enterprise, a company that will supply technologies to businesses, and HP Inc., a PC and printer company. According to The New York Times, the third-quarter report is “a reminder of the grim challenges” that prompted the breakup.

Net income for the quarter, which ended July 31, fell 13% to $900 million, or 47 cents a share, while net revenue fell 8%, to $25.3 billion. Wall Street analysts were expecting revenue of $25.4 billion, but HP’s profit of 88 cents a share, if items like restructuring costs and acquisition-related charges were excluded, was slightly better than expectations of 85 cents a share.

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All of HP’s major business units continued to shrink, with PC revenues down 13% and printer revenue down 9%. The company is the world’s number-two PC seller, behind Lenovo Group.

“PCs, and print to some degree, had a tough quarter,” HP CEO Meg Whitman told The Wall Street Journal. “We think, by the way, that these market conditions are going to continue for at least several quarters.”

That could spell tough times ahead for the new HP Inc. While executives were bullish about HP Enterprise in a conference call with analysts, the Times said, “they used phrases like ‘very challenging market’ and ‘difficult business environment’ when talking about the printing and PC groups that will be part of HP Inc.”

“It was a strikingly different message in terms of optimism for HPI versus HPE,” said Toni Sacconaghi, a research analyst at Sanford C. Bernstein.

HP’s enterprise group, which includes servers, storage, and networking, experienced a 2% increase in third-quarter revenue to $7 billion that was driven by strong sales of servers and networking equipment. But the WSJ noted that HPE’s business is threatened by big companies renting computing power from, Microsoft, and IBM, among others.

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