Hewlett-Packard Reports Drop in Revenue, Earnings

Computer and printer giant Hewlett-Packard Co. continued the tech-sector malaise Wednesday, announcing sharply reduced revenue and earnings in the last quarter. The company predicted that revenue could fall 5% in the current quarter.

“It’s disturbing, certainly. Is it unexpected? No,” said Daniel Kunstler, a financial analyst with JP Morgan.

Weakening sales in Europe suggest that even if a bottom to the economic slowdown is approaching, HP’s fortunes may not improve for some time, he said.

The Palo Alto-based company announced earlier this year that it would cut 4,700 jobs and warned that earnings would fall sharply below projections.

In its fiscal second quarter ended April 30, HP earned $324 million, or 15 cents per diluted share, excluding one-time gains and losses, matching Wall Street’s reduced expectations. But earnings fell 64% from $890 million, or 45 cents per share, in the same period a year earlier. Sales were $11.6 billion in the latest quarter, compared with $12 billion a year earlier.

“We can’t pin all of the issues we encountered on the economy,” HP Chief Executive Carly Fiorina told analysts. Yet she blamed the economic slowdown for reduced sales.

Meanwhile, lower-cost and less-profitable products are becoming a larger part of HP’s overall sales. The company hopes to rebuild its earnings momentum on sales of ink and other supplies to keep those printers operating.

HP dominates the inkjet printer market and is rapidly gaining share in the sub-$100 printer market, according to analysts.

“This was a tough quarter, but we are also seeing signs of real progress,” Fiorina said, citing improving market shares for several printer categories and gains in business services. The company predicted that printer supply sales will rebound over the next two quarters.

“They’ve been setting cautious expectations and have met them,” said Richard Chu, an analyst with SG Cowen Securities, calling the company’s modest improvements “optimistic under current conditions.”

HP is the third-largest producer of personal computers but saw its U.S. market share drop to 10.1% in the last quarter from 12.2% a year earlier, according to market analyst firm International Data Corp. Most of that share was picked up by PC leader Dell Computer Corp.

Kunstler cited several other worries for HP, including declines in sales of high-priced servers that manage computer networks and weak PC demand.

“You’ve [also] got a shift in the mix in printers toward the low end,” he said.

Still, investors seemed cheered that the news wasn’t worse. HP’s stock rose $1.34 to close at $26.74 in regular New York Stock Exchange trading ahead of the announcement. In after-hours trading, the company’s shares rose to $28.

Going forward, HP will exercise “extremely disciplined expense control and asset management,” Fiorina said.

But Fred Hickey, editor of the High-Tech Strategist, a newsletter in Nashua, N.H., said HP waited far too long before reducing its staff and bought back too much of its own stock in a fruitless effort to buttress share value.

Fiorina recently delayed pay increases for engineers after nearly two years of cultivating her image as a jet-setting corporate superstar, Hickey said. She overemphasized expensive branding initiatives and ill-fated dot-com investments when HP should have stuck to its core businesses, he added.

“It’s the wrong style. This is not the kind of management that will conserve cash in a downturn,” said Hickey.