February 22, 2011 / 5:38 AM / 7 years ago

HP trims 2011 sales forecast, shares plummet

<p>A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010. REUTERS/Thierry Roge</p>

SAN FRANCISCO (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 more than 12 percent.

The dismal performance made for a tough start for new Chief Executive Leo Apotheker. The fiscal first quarter was the first for the former SAP CEO, who joined the company after the controversial ouster of the popular 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 against competition from Lenovo and Acer Inc. Revenue from its giant services arm slid 2 percent.

That limp performance 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’s margins.

Executives warned analysts that lower component prices would not benefit HP as much this quarter.

“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.”

“People are probably going to look at this and expect they will need some acquisitions to drive more topline growth.”

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.

HP said on Tuesday it lowered its yearly sales outlook due to weak demand for consumer PCs, and slower-than-normal growth in HP services. These include datacenter setup, IT outsourcing and other businesses in which the company is working to improve its short-term signings.

“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.

For a graphic comparing HP with major rivals International Business Machines Corp, Dell and Apple Inc, click r.reuters.com/nyq28r

WAITING FOR LEO

Revenue in two key segments -- services and printing -- slid 2 percent and climbed 7 percent, respectively. IT services and printing account for roughly two-thirds of HP’s operating income, but less than half of revenue. By comparison, PCs provide less than 15 percent of HP’s operating profit but roughly one-third of revenue.

HP reported net income of $2.6 billion for the fiscal first quarter ended January 31, or $1.17 a share, up from $2.3 billion, or 93 cents a share, a year earlier.

Excluding items, HP earned $1.36 a share, better than the average analyst estimate of $1.29 a share, according to Thomson Reuters I/B/E/S.

Revenue rose 4 percent to $32.3 billion, but fell short of Wall Street’s estimate of $32.96 billion.

“They did a good job on the bottom line, a little bit light on the revenue side. Services and software were a bit weaker than expected,” said Gleacher & Co analyst Brian Marshall.

Before Tuesday, HP shares had largely rebounded from lows touched after the surprise ouster of Hurd last August. The stock had been up about 14 percent this year.

But investors are still eager to learn more about Apotheker and his long-term vision for HP. Apotheker is expected to share his strategy at an event for analysts and media on March 14.

Tuesday’s report sent HP’s stock into a rare tailspin. In after-hours trading, it dived more than 10 percent -- surpassing the one-day percentage drop after the company stunned investors by announcing Hurd’s exit. The sell-off, if racked up during a regular session, would mark the stock’s biggest one-day drop since August 2004.

Shares of Palo Alto, California-based HP closed almost 1 percent lower at $48.23 on the New York Stock Exchange and fell further to $42.11 in extended trading.

Additional reporting by Noel Randewich; Writing by Edwin Chan; Editing by Richard Chang

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