HP's CEO: Not Ready to Call It Better

By Jessica Davis  |  Print this article Print

Computer giant HP's sales dipped 3 percent in the second quarter, including its EDS acquisition, but that performance wasn't enough for HP's CEO to call an end to the current economic crisis. Instead, HP took the conservative road, narrowing revenue guidance toward the lower end of what it had previously forecast for 2009, and said we are in for more of the same.

While Intel's (NASDAQ:INTC) and Avnet’s (NYSE:AVT) CEOs have recently mentioned the word "bottom" when referring to the current economic crisis, that’s not a word that was in Hewlett-Packard (NYSE:HPQ) CEO Mark Hurd’s vocabulary during the computer giant’s second-quarter conference call with analysts this week.

Instead, HP’s CEO provided a more conservative outlook on the state of the economy and the market, and the outlook for HP’s sales in 2009. The company narrowed its forecast for fiscal year 2009 from a 2 percent to 5 percent decline in sales to a 4 percent to 5 percent decline in sales, leaving some scratching their heads as to whether we’ve actually hit bottom or not.

"I think we see the market as roughly the same," Hurd told an analyst who had asked about the narrower range.

Hurd said that he’s seen some encouraging signs at a macro level, such as stronger-than-expected business in China and some slight improvements in the U.S. consumer business.

"In terms of the rest of the market, I could tell you a lot of stories with a lot of different signs, but I’m not ready to call it better, beyond the two that I described to you," he said. "So I think you should view this as sort of steady as she goes."

For Q2, HP reported net revenue down 3 percent to $27.4 billion. Net earnings came in at $1.7 billion, down from $2.1 billion for the same period a year ago.

For the quarter, HP services led in revenues, contributing $8.5 billion, compared with last year’s $4.3 billion in Q2. Services, which now include the EDS acquisition, have become HP’s largest division. Enterprise Storage and Servers contributed $3.5 billion to revenues compared with $3.9 billion in the previous sequential quarter and $4.8 billion in the same quarter a year ago.  HP Software contributed $880 million to revenues compared with $1 billion during the same period a year ago. (All these organizations are part of HP’s Technology Solutions Group.)

The story was the same for many of HP’s other divisions. The company’s Personal Systems Group saw sales fall to $8.2 billion in Q2 from $10.1 billion during the same period a year ago. HP’s Imaging and Printing Group saw sales plunge to $5.9 billion in Q2, down from $7.6 billion during the same period last year. And HP Financial Services saw revenue fall to $641 million in Q2 from $685 million for the same period last year.

HP executives also noted that the company’s supplies business declined 7 percent and 14 percent in the last two quarters, respectively.

"I think you should expect probably in Q3 a bit more of what you saw in Q2 for us," Hurd said. "There are some places that we did a very good job in IPG [Imaging and Printing Group], managing the collective owned inventory and channel inventory. We feel very good about that. But there are some places that we’d like to align the mix of hardware with supplies within the context of the channel inventory."

Hurd said that HP will go after more market share in this area in Q3 because "we had some hardware situations where we had some outages" in Q2. "We could have shipped some more hardware units in the quarter than we did. So we’ll try to take advantage of those opportunities from a market share perspective in Q3."

Hurd said the company will lay off an additional 2 percent of its work force, or 6,000 employees.

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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