Home / Companies / H-P’s fourth-quarter sales miss estimates ahead of split

San Francisco/Seattle: Hewlett-Packard Co. (H-P), the computer maker that plans to split into two companies, reported fiscal fourth-quarter sales that fell short of analysts’ estimates, hurt by an accelerating shift to cloud computing and a tepid personal-computer (PC) market.

Sales in the period ended 31 October fell 2.5% to $28.4 billion, the Palo Alto, California-based company said on Tuesday in a statement. Analysts on average had projected revenue of $28.8 billion, according to data compiled by Bloomberg. Profit excluding some items was $1.06 a share, matching estimates.

The results underscore the challenges facing the company’s disparate divisions and bolster the case for splitting into two entities—one for PCs and printers and another for corporate hardware and services, a plan unveiled in October by chief executive officer Meg Whitman. While the PC division has benefited from improved corporate demand and the success of low-cost laptops, growth is being held back as the enterprise units struggle with a transition to services based in the cloud.

“It was kind of a mixed quarter," said Daniel Morgan, a fund manager at Synovus Trust Co. in Atlanta, which owns the shares. “PC was a little better than expected. Enterprise group and services, I had them going down in the quarter, but depending on your estimates they were not as good as people expected."

H-P shares fell as much as 4.3% in extended trading after the report. Earlier, they rose less than 1% to $37.63 at the close in New York. The stock has gained 34% this year.

Net income

Net income in the fourth quarter fell to $1.33 billion, or 70 cents a share, from $1.41 billion, or 73 cents, a year earlier, the company said.

In the current period, profit before certain items will be 89 cents to 93 cents a share, the company said, compared with an average analyst estimate of 93 cents, according to data compiled by Bloomberg. For fiscal 2015, profit will be $3.83 to $4.03 a share, compared with the average projection of $3.95.

The forecast doesn’t include the costs of splitting the company, which H-P is still trying to calculate, Whitman said on a conference call on Tuesday. The company will provide an update when it reports earnings for the first quarter.

A year ago, Whitman said on an earnings call that H-P would face a tough year, with “macroeconomic headwinds almost across the board." She was right—though the company made headway in PCs, its other divisions have stagnated, all posting lower annual revenue for fiscal 2014.

PCs, enterprise

Fourth-quarter sales in the PC unit climbed 4% from a year earlier, led by corporate demand, while sales in the printing group fell 5%, H-P said.

Strength in commercial PCs will slow down, Whitman said on Tuesday, echoing a forecast by market researcher IDC, which projects PC shipments in mature markets will decline in 2015.

Enterprise services revenue fell 7% in the quarter, and enterprise group sales—made up of products like servers and storage—dropped 4 percent. The software and financial-services groups each posted a revenue decline of 1%.

“While we are seeing clear pockets of growth, other areas still need more work," Whitman said on the call on Tuesday.

The company has been pressing forward with its plan to split, moving executives into roles to oversee the breakup. Chris Hsu, senior vice president of operational performance, will lead the separation of HP Enterprise, while Enrique Lores, senior vice president for Business Personal Systems, will help the PC and printer units form their own company. So far the separation process hasn’t been a distraction, Whitman said.

New leadership

“You’re going to move some groups together, but does that change the issues facing this company?" said Synovus Trust’s Morgan. “There’s no growth."

Whitman, who will run H-P’s enterprise company after the split, and Dion Weisler, who will lead the new HP Inc., focused on PCs and printers, have spent the past year seeking to convince investors that each of the company’s businesses is capable of inventing its way back to technology leadership.

The duo have presided over the introduction of a research- and-development plan for a new type of high-margin computer called the Machine; debuted new servers based around low-power chips from UK semiconductor designer ARM Holdings Plc; unveiled a new category of 3-D-capable PC named Sprout; created a cloud-computing service named Helion; and took the wraps off new technology to let H-P enter the market for three-dimensional printers.

Cloud competition

In the next year, Whitman will be challenged to reshape the enterprise division for cloud, where it competes with services from companies from International Business Machines Corp. (IBM) to Amazon.com Inc., said Jeffrey Fidacaro, an analyst with Monness Crespi Hardt and Co. Weisler will need to maintain H-P’s position in the PC market, he said.

“The value-add or value proposition you bring to the enterprise has to be significantly better than the savings you get from putting it on Amazon’s cloud," said Fidacaro, who rates the stock a buy. “I think that’s where the challenge is right now." Bloomberg

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