SAN FRANCISCO (Reuters) - Hewlett-Packard Co cut its full-year outlook after quarterly revenue missed expectations on weak sales of printers, personal computers and servers, sending its shares down 6 percent.
The world’s largest PC maker said on Wednesday it expects the last quarter’s weak market conditions to persist, and exchange rates to continue to hurt revenue, forcing it to slash its fiscal 2009 sales outlook by around $14 billion.
“We just don’t want to bank on the fact that the economy is going to get better,” Chief Executive Mark Hurd said on a conference call, as he emphasized HP’s plans to create a leaner cost structure. “I mean, we just don’t see a catalyst to change it.”
While HP’s diversified business lines -- which also include computer services and software -- have kept it relatively resilient to the economic downturn, it is still vulnerable to sharp cutbacks in corporate spending on technology.
“The big disappointment, not surprisingly, is the shortfall in revenue,” said Pacific Crest Securities analyst Brent Bracelin. “Their hardware businesses, both servers and storage, are under intense scrutiny. Budgets are being cut and that showed up in the shortfall today.”
For fiscal 2009, HP on Wednesday forecast profit excluding items of $3.76 to $3.88 a share, on a revenue of roughly $112.5 billion to $116 billion. That compared with its previous forecast for earnings per share of $3.88 to $4.03 on revenue of $127.5 billion to $130 billion.
Wall Street analysts, on average, had expected earnings of $3.78 a share on revenue of $126.6 billion.
“They are vulnerable to weakening PC sales,” said Shebly Seyrafi, analyst at Calyon Securities. “Shares are down on a combination of the actual results, the revenue mess and the lowering of the annual guidance. There are lots of reasons to be concerned about Hewlett-Packard.”
FOCUS ON COSTS
The technology bellwether said net profit for its fiscal first quarter ended January 31 fell to $1.85 billion, or 75 cents a share, from $2.13 billion, or 80 cents a share, in the year-ago period.
Excluding items, HP earned 93 cents a share, matching average analyst estimates, according to Reuters Estimates.
HP said it was committed to a lower cost structure, and Hurd said the company would be taking out more in costs in 2009 than it has in previous years. It plans to reduce base pay and some benefits in the current quarter.
HP said the integration of technology services provider EDS -- which it bought last year for $13.2 billion -- is running ahead of schedule, and it has so far reduced 9,000 of the 24,700 positions outlined in its restructuring plan.
The EDS deal made HP the second-largest tech services company behind International Business Machines Corp and helped HP report a $1.1 billion operating profit in its services segment.
Some analysts pointed to tight cost controls as a reason for optimism.
“A laser focus on cost-control has benefited HP despite a dramatic falloff in revenues and I don’t think the outlook is as bad as it could have been given currency headwinds and overall weak demand environment,” said Bill Kreher, analyst at Edward Jones.
HP said fiscal first-quarter revenue rose 1 percent to $28.8 billion, below the $31.9 billion Wall Street estimate.
Revenue in HP’s personal systems group dropped 19 percent to $8.8 billion, with unit shipments down 4 percent. Notebook revenue fell 13 percent and desktop sales declined 25 percent.
Services revenue more than doubled to $8.7 billion, mainly due to EDS, while imaging and printing group sales fell 19 percent to $6 billion. Revenue from enterprise storage and servers dropped 18 percent to $3.9 billion.
For the current quarter, HP expects a profit of 84 cents to 86 cents a share from continuing operations, on revenue of about $27.4 billion to $27.7 billion. That compares with the average Wall Street forecast for earnings of 90 cents a share on revenue of $31 billion.
The PC segment is suffering from a severe falloff in demand and is not expected to bounce back any time soon. IDC said global PC shipments fell slightly in the calendar fourth quarter, although HP eked out 3 percent growth.
Shares of HP, a Dow component, are down around 20 percent from a year ago. The stock fell to $32.05 in extended trading from its New York Stock Exchange close of $34.08.
Additional reporting by Anupreeta Das and David Lawsky; editing by Richard Chang and Tiffany Wu
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