HP faces PC slump as quarterly profit forecast falls short

Hewlett-Packard Enterprise Chief Executive Officer (CEO) Meg Whitman speaks during a press conference in New York.
Hewlett-Packard Enterprise Chief Executive Officer (CEO) Meg Whitman speaks during a press conference in New York.PHOTO: AFP

SAN FRANCISCO (BLOOMBERG) - HP gave a disappointing forecast for profit in its first quarter as a stand-alone company, hurt by its dependence on the lacklustre market for personal computers and printers after splitting up with its corporate-technology counterpart.

On a conference call on Tuesday following Hewlett-Packard Co's final earnings report as one company, HP Inc executives said the PC industry is tougher than anticipated. The former PC and printer units were separated this month from the divisions that sell equipment, services, and software to businesses, now known as Hewlett Packard Enterprise. HPE's quarterly profit forecast also fell short of analysts' estimates, yet executives struck a more positive tone, pointing to revenue growth minus the impact of currency fluctuations.

Meg Whitman, who became chief executive officer of HPE in the split and is chairman of HP Inc, has advocated for the separation by touting the opportunities that independence offers each company, saying they can be more nimble and responsive to customers as the technology landscape changes. While that bet may pay off, it also shines a bright light on the struggles HP Inc faces in the shrinking PC market, even as HPE scouts out new areas for growth.

For the fiscal first quarter, which ends in January, HP Inc expects profit excluding certain costs to be 33 US cents to 38 cents US per share - falling short of the average analyst estimate for 42 cents, according to data compiled by Bloomberg. HPE profit will be 37 cents to 41 cents a share, the company said in a statement, compared with an average projection for 44 cents.

HPE reaffirmed its forecast for annual profit, before certain items, to be US$1.85 to US$1.95 a share.

Once a Silicon Valley bellwether, Hewlett-Packard announced its plan to split itself in two last year after failing to keep up sales growth amid rapid changes in the industry, especially shifts toward mobile and cloud-based computing. Tuesday's earnings announcement provided consolidated financial results for the quarter and year through the end of October. On that basis, fiscal fourth-quarter sales fell 9 per cent to US$25.7 billion, compared with analysts' average projection for US$26.6 billion, according to data compiled by Bloomberg. Sales at the 76-year-old company declined in 16 of its last 17 quarters.

Fourth-quarter net income for the former Hewlett-Packard Co was little changed at US$1.3 billion.

PC-division sales in the fourth quarter fell 14 per cent from a year earlier, after dropping 13 per cent in the previous quarter. Growth has evaporated in the PC industry as more consumers and workers use smartphones when they want to check e-mail or surf the Web. Global PC shipments fell 7.7 per cent in the calendar third quarter, according to Gartner. Revenue from the printing business, which carries higher operating margins, also dropped 14 per cent.

To help counter the persistent slump, the company is moving more quickly to take costs out of the business, chief financial officer Catherine Lesjak said. Job cuts of about 3,300 that were supposed to take place over three years are likely to be accelerated to about 12 to 18 months. The company will look for other opportunities to address expenses, she said.

Sales growth was uneven for key businesses that have been folded into HPE, whose divisions turned in total fourth-quarter revenue of US$14.1 billion - down 4 per cent from a year earlier. Without the effect of currency fluctuations, sales from those divisions would have risen 3 per cent in the quarter, HPE said.

Ms Whitman's separation strategy is antithetical to the one some rivals are pursuing - including PC maker Dell Inc., which is set to bulk up through a combination with storage-systems provider EMC Corp in the largest technology deal on record. While HPE is trying to win by becoming nimbler, Dell and EMC sees the industry winners taking share because of their scale.

All this is happening against the backdrop of the rise of public clouds, which let corporate customers access remote data centres to run their computer and storage needs without buying and maintaining their own expensive gear. Last month, Hewlett-Packard said it would shut down its own public cloud offering, ceding the market to leaders such as Amazon.com and Microsoft.

To that point, Hewlett Packard Enterprise has struck a deal to provide public cloud services through Microsoft, Ms Whitman said on Tuesday on the conference call.