HP Posts Negative Q1 Earnings, Sour Outlook

HP Posts Negative Earnings, Sour Outlook

Hewlett-Packard reported a dismal quarterly profit that dropped 13 percent while sales increased by  just 1 percent as even the Palo Alto tech company’s profitable printer ink business was shaken by a devastating time in the economy.

HP shares fell $2.03, or 6 percent, to $32.05 in extended hours trading, after closing down 26 cents during the regular trading session, before earnings were reported.

Crippled technology spending amidst a rapidly declining economic situation affected all but one of HP’s major business lines, including PCs and servers. Only HP’s services division saw an increase.

Services have also been solid for rival IBM Corp., since corporations are trying to save money by outsourcing some of their technology positions.

HP earned $1.85 billion, or 75 cents per share, in the three months that ended Jan. 31. This compares with profit of $2.13 billion, or 80 cents per share, a year ago.

However, HP’s sales of $28.8 billion fell short of Wall Street’s forecast by more than $3 billion. Analysts expected $31.9 billion in revenue. Without currency fluctuations, HP said its quarterly sales increased 4 percent over last year instead of the 1 percent rise with the currency fluctuations.

“Investors could be shaken by this report, and it could cause some of them to move to the sidelines,” said Calyon Securities analyst Shebly Seyrafi. HP still gets “a relatively high percentage of its business from hardware, and that hardware side is going to be very vulnerable in this economic environment.”

The pain of tighter budgets was felt across nearly all of HP’s businesses and sales in the personal computer division fell 19 percent to $8.8 billion.

“Our market strength, disciplined cost management and diverse portfolio allowed us to differentiate HP in the global marketplace and gain share in key markets,” said HP Chairman Chairman Mark Hurd who has met or exceeded guidance every quarter.

The lucrative printer and ink division, which contributes more than 40 percent of HP’s operating profit, was also battered, with sales falling 19 percent to $6 billion. This includes a 7 percent decline in supplies, a typically strong area that includes things like toner, ink cartridges, and spares, which are among HP’s biggest moneymakers.

Cathie Lesjak, HP’s chief financial officer, said the decline in ink sales was a “reflection of a very tough economy — in a tough economy folks don’t print as much,” a trend HP expects to continue and has baked into its 2009 guidance. HP is banking on the services business to pick up some of this decline.

“In the past, (the printer and ink) division has probably been the crown jewel of Hewlett-Packard, but today we’ve got another one, and that’s services,” she said in an interview. “It was the services resilience, and the profits that services generated in (the first quarter), that more than offset the declines in the hardware business.”

HP predicted that it would earn between $3.76 and $3.88 per share in 2009, excluding one-time costs. Analysts polled by Thomson Reuters were expecting profit of $3.77 per share on that basis.

HP also announced that Chief Executive Mark Hurd’s base pay will fall by 20 percent, other executives will see their pay decline by as much as 15 percent, while pay for other employees will decline by as much as 5 percent.

The company says employees will get the money back in the form of bonuses if HP performs well.

-Arkady Ignatov contributed to this article

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