Thu, Feb 24, 2011 - Page 10 News List

HP shares slide amid growth fears


Hewlett-Packard Co’s (HP) new CEO Leo Apotheker delivered some disappointing news to Wall Street on Tuesday after his first full quarter with the technology company.

Revenue growth, a persistent worry for companies of HP’s size, will be slower this year than many analysts had envisioned. It was an unusual letdown that raised questions about the momentum of the company’s acquisition-fueled transformation into a computing clearinghouse.

Investors punished HP’s stock, one of the the Dow Jones industrial average. The stock shed 12 percent in extended trading following the release of the fiscal first-quarter results.

Few companies are as good a proxy for the technology market as HP. It’s the world’s biggest technology company by revenue and is a player in many far-flung markets, from personal computers and smart phones and tablets to technical services and computer servers and data storage.

Yet the latest report appears to point more toward the danger of companies setting ambitious financial targets in a shaky economy than any broad weakness in technology spending that will spill over to other companies.

Another heavyweight, Cisco Systems Inc, has also stumbled, but its problem is mainly that it relies heavily on sales to cash-strapped government buyers. That’s an area that HP is far less exposed to.

HP shares tumbled US$5.83 to US$42.40 in after-hours trading.

HP said after the market closed that its net income jumped 16 percent to US$2.61 billion, or US$1.17 per share, in the three months ended Jan. 31. A year ago, it earned US$2.25 billion, or US$0.93 per share.

HP said that excluding one-time items, it earned US$1.36 per share in the latest quarter. That was ahead of the US$1.29 per share that analysts polled by FactSet expected on that basis.

Revenue rose 4 percent to US$32.30 billion, from US$31.18 billion a year ago. However, analysts expected more: US$32.96 billion, according to FactSet.

HP appeared to attempt to quell concerns by raising its full-year profit forecast. It expects net income in a range of US$5.20 to US$5.28 per share, excluding items, which is in line with analysts’ target for US$5.23 per share on that basis.

However, revenue prediction fell short. HP said it expects revenue of US$130 billion to US$131.5 billion in its current fiscal year, which ends in October. Analysts expected US$132.91 billion.

The guidance raised concerns because HP has spent heavily in recent years on acquisitions that were expected to propel substantial growth in areas that rival IBM Corp has found highly lucrative, especially selling technical services to corporations.

The latest numbers show that HP is benefiting from the changes in its business model — just not as much as some investors would like.

The company’s keener courtship of corporations has helped the company grow in the face of anemic consumer demand.

Yet revenue in HP’s services division fell 2 percent from the year-ago period. Weakness in short-term services contract signings drove the decline, Apotheker said.

It doesn’t necessarily reflect an industry-wide problem. IBM’s services revenue rose 2 percent in the latest quarter. IBM’s services business is almost twice as big as HP’s.

HP’s personal computer division had a 1 percent decline in revenue. HP underestimated the extent of the weakness in the consumer PC market, Apotheker said.

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