HP Forecast Disappoints on PCs, IT Services

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HP cut its 2011 revenue projections, citing weak consumer PC demand and slower times in its IT services arm. The quarter earnings announcement marked the first for HP's new CEO Leo Apotheker, the former chief at SAP.

(Reuters) - Hewlett-Packard Co trimmed its 2011 revenue projections on weak consumer PC demand and a lackluster showing from its IT services arm, sending its shares plummeting 12 percent.

The weak performance, which saw HP missing its own revenue target for the fiscal first quarter, made for a tough start for new Chief Executive Leo Apotheker.

The January quarter was the first for the former SAP CEO, who joined the company after the controversial ouster of the Mark Hurd and has since put his own stamp on the company. HP added five new directors to its board in a major shake-up just last month.

Sales from its personal systems group slipped 1 percent as the company's personal computer sales in China continued to struggle. Revenue from its giant services business slid 2 percent, as HP saw a shortfall in short-term, "add-on" deals in areas such as infrastructure technology outsourcing.

"If you use Q1 as a marker, it's clear that we do a lot of things well at HP. It's also clear that we have isolated areas we need to improve," Apotheker told reporters on a conference call.

HP's poor showing overshadowed a beat on fiscal first-quarter profit, driven in part by cost discipline and lower component costs that had also boosted rival Dell Inc.

HP's bright spots included strong sales of enterprise servers, storage and networking equipment, and a good performance in the printing group.

"The net of it was you had a miss on the PC side, and that's clearly not bouncing back," said Cross Research analyst Shannon Cross. "People are worried about the ability of HP to show strong growth."

Gross margin came in at 24.4 percent, just above Wall Street's forecast. But HP warned that lower component prices would not benefit it as much this quarter.

"If it's all from component prices they won't get any credit," said Wedbush Securities analyst Kaushik Roy. "The question is -- are gross margins getting better partly because better supply chain and mix shift to higher margin businesses like networking, storage and servers?"

The world's largest technology corporation by revenue raised its forecast for fiscal 2011 non-GAAP earnings, predicting a profit of $5.20 to $5.28 a share. But it trimmed its revenue outlook to a range of $130 billion to $131.5 billion, from a previous $132 billion to $133.5 billion.

The lower sales outlook was due to weak demand for consumer PCs, and slower-than-normal growth in HP services.

HP emphasized that its forecast -- which was also below analysts' expectations for the current April quarter on a revenue basis -- was conservative.