Hewlett-Packard's 4th qtr likely fueled by PC rebound, but printer and ink worries persist
By: JORDAN ROBERTSON
Associated Press
11/21/09 11:45 AM EST
SAN JOSE, CALIF. — Hewlett-Packard Co. is scheduled to report its fiscal fourth-quarter earnings on Monday after the market closes. Below is a summary of key developments and analyst commentary related to the period.
OVERVIEW: Things are looking up for the personal computer business heading into the holiday season, which is good news for HP, the world's No. 1 PC maker. But challenges in other areas, particularly printers and printer ink, continue to weigh on the big technology company. HP is also the world's top printer maker, and ink is a cash cow.
Revenue in HP's printer and ink division has declined in each of the last four quarters. Some of the decline can be attributed to lower business spending on new technology, as well as a shift toward cheaper generic ink. But HP says currency fluctuations and changes in the way the company manages its resellers' inventories are also to blame.
Cathie Lesjak, HP's chief financial officer, said in August that she expects HP's supplies business to improve over the next few quarters as some of those issues are worked out.
HP is undergoing a big transformation to make itself less dependent on the PC and printer businesses, particularly through its $13.9 billion acquisition of Electronic Data Systems Corp., a company that competes with IBM Corp. and has made HP's technology services group the company's biggest revenue and profit generator.
HP is also muscling into Cisco Systems Inc.'s computer-networking turf with its $2.7 billion takeover of 3Com Corp. announced earlier this month.
Deep cost cuts have accompanied the changes. HP is eliminating 24,600 jobs as part of the EDS acquisition, and hasn't addressed whether there will be layoffs at 3Com, which has 5,800 employees worldwide. In May the company announced a separate round of 6,400 cuts involving workers from the product divisions.
BY THE NUMBERS: On Nov. 11, HP announced preliminary fourth-quarter earnings of 99 cents per share, versus 84 cents per share in the year-ago period. Excluding items, HP said it earned $1.14 per share. Preliminary revenue fell 8 percent to $30.8 billion.
Analysts polled by Thomson Reuters expect profit of $1.13 per share excluding items, and $30.4 billion in revenue for the quarter ended Oct. 31.
ANALYST OPINION: Dinesh Moorjani, an analyst with Broadpoint AmTech, wrote in a recent note to clients that he expects investors to focus on HP's printer and ink division, where he expects a "significant rebound in growth" as depressed demand picks up.
"We believe inventory de-stocking by customers is largely complete, and that revenue should grow in line with end demand" in the first half of 2010, Moorjani wrote.
WHAT'S AHEAD: For fiscal 2010, HP predicts profit of $4.25 to $4.35 per share on revenue of $118 billion to $119 billion.
STOCK PERFORMANCE: HP's stock gained 9 percent during the quarter, and has risen since to a high of $51.43 on Nov. 17, a level the stock hasn't seen since late 2007.
