HP Warns of Sales Decline
Hewlett-Packard Co. warned that slumping economies in Asia and Latin America are hurting the company’s computer and printer sales even more than executives forecast just three weeks ago.
The Palo Alto tech giant told securities analysts Wednesday that it was “more cautious” about fiscal third-quarter revenue slipping no more than 5% from a year earlier. And Chief Executive Carly Fiorina said HP will cut additional, unspecified costs to increase the probability of meeting analysts’ profit expectations of 23 cents a share for the period ending July 31.
For the year-earlier quarter, HP’s profit from continuing operations was about $1 billion, or 49 cents a share, on revenue of $11.8 billion.
“The economy is impacting all of our businesses and all of everyone else’s businesses,” Fiorina said. “We don’t see near-term signs of recovery.”
HP’s latest warning came a week after a similar alarm about slumping European sales from Sun Microsystems Inc., one of HP’s chief rivals in making high-end computers for corporations. And Intel Corp., the biggest maker of semiconductor chips for computers, is expected to announce lower sales or profit expectations for this quarter today.
HP shares fell $1.34 on Wednesday to $28.71 and dragged down some other computer-related stocks: Dell fell 96 cents to $25.26, while Compaq was off 13 cents to $15.98.
Analysts said HP is suffering from a mix of economic conditions, an increasingly intense price war among computer makers and some distribution problems.
“They’re working hard, but business is still bad for them,” said analyst Stephen Dube of Dresdner Kleinwort Wasserstein.
Fiorina said she was continuing to work at transforming HP, one of the oldest companies in Silicon Valley, from a corporate culture of consensus management to a more nimble one focused on the bottom line.
Fiorina added that HP, which is now the top seller of home desktop computers worldwide, won’t participate in the PC price war even at the expense of losing market share. HP’s personal computer sales are breaking even, she said.
Beset by the economy, tough competition and a less efficient delivery model than direct-PC seller Dell, HP has reported two quarters of declining net income. And HP’s shares have lost half their value in the last year.
In the large computer market, HP is going up against Sun, which has expensive but distinctive offerings, and against IBM, which has a larger sales and support staff. HP is trying to do many things at once, supporting Microsoft, Linux and its own operating system running on machines with different chips.
So Fiorina has been pushing the company to build up its smaller but more profitable business in consulting and other services, where it faces a battle against the more entrenched IBM.
In recent months, a small but increasing number of critics has been pressing HP to abandon home computer sales, spin off the profitable printing and imaging business, which includes digital cameras and scanners, or take other radical steps.
Fiorina and other HP executives rejected those ideas Wednesday, defending printers as an integral part of the company and home computers as strategic, if less critical than HP’s large computer servers and other businesses.
“It makes more sense to keep our portfolio together than even when I arrived,” in July 1999, Fiorina said. “We are continuing to look for ways to sharpen our focus.”
Several analysts at Wednesday’s semiannual gathering said the company was right to stay the course by shedding only smaller and unprofitable divisions. “They’re managing their assets well,” said J.P. Morgan analyst Daniel Kunstler.
But others seemed almost wistful.
“I would welcome a spinoff of their imaging business,” said analyst Kimberly Alexy of Prudential Securities. “The question is, what would they be left with?”
