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HP fumbles its recovery as economic complexion changes

By Scott M. Fulton, III, Betanews

After CEO Mark Hurd led Hewlett-Packard through the aftermath of Carly Fiorina and then the boardroom scandals, you’d think it would have been prepared for the downturn in the global economy. But more than one factor surprised analysts today, in reading the early numbers from HP, the first one being this: Shipments of personal systems in the company’s fiscal third quarter, ending last July, increased by 2% over Q3 2008, but revenue fell 18% in the same interval to .4 billion.

Conceivably, shipment rates overall should be permitted to slip between 8% and 10% this year. But that’s for the overall market, which includes servers. In Enterprise and Servers, a key revenue category, revenue was down 23% to .7 billion. But you can see from the disparity between the two revenue figures that HP these days does more than two-thirds of its systems business with consumers, not businesses individual unit sales as opposed to volume business sales [an HP spokesperson asked Betanews for that clarification]. While HP omitted server shipment figures from its early numbers (those will probably have been squeezed out of the company by tomorrow morning), server shipments would have to have fallen by as much as 10%, we estimate, for HP’s performance to be in keeping with the average overall shipment decline that analysts expect, assuming costs stay flat (and they’re not — they declined a bit in this last quarter).

So it didn’t help that HP hasn’t been able to cut costs any more than it already has. Earnings in the Personal Systems division fell about one-third on the year to only 6 million. And earnings in servers fell by about the same amount to 6 million.

HP didn’t need a triple-barrel hit this quarter. It got one anyway, by virtue of the precipitous decline in the very business segment that saved its neck five years ago: printing and imaging. Revenue there declined a massive 20.6% annually, to .66 billion. Earnings fell there to under a billion dollars.

So it was the Services division, of all places, that floated the company: The division that swallowed former services giant EDS saw revenue this quarter that almost doubled from last year, and earnings that now dwarfs that of the once-stalwart printing division by about one-third. While HP maintains the global lead in computer market share, according to outside analysts, and that lead appears to be widening, its declining shipments coupled with similarly precipitous declines on the part of #2 Dell may be opening the door wider for the arrival of Acer in the personal systems market.

Copyright Betanews, Inc. 2009

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