Hewlett-Packard avoids the noose -- for now

The tech stalwart's earnings weren't as horrendous as feared, but even CEO Meg Whitman admits the turnaround has years to go.

By Jonathan Berr Feb 22, 2013 11:54AM
A Hewlett-Packard Co. LasetJet CP2025dn printer sits on display at an Office Depot store in Arlington, Virginia (© Andrew Harrer/Bloomberg via Getty Images)Hewlett-Packard (HPQ) CEO Meg Whitman has repeatedly told investors clamoring for a turnaround at the struggling tech giant to be patient. Finally, it looks like investors' patience could be rewarded, though the celebration may be premature.

Shares of the company -- founded by Bill Hewlett and Dave Packard in a one-car garage -- are sharply higher in Friday morning trading, buoyed by better-than-expected quarterly results and an upbeat earnings forecast. The actual numbers, however, were not good.

Net income fell 16% to $1.23 billion, or 63 cents per share, versus $1.47 billion, or 73 cents, a year earlier. Revenue fell 6% to $28.4 billion. Excluding one-time items, profit was 82 cents. Analysts surveyed by Bloomberg News expected profit of 71 cents on revenue of $27.8 billion. The company also gave bullish guidance.

HP's businesses serving both corporations and consumers posted across-the-board declines, indicating that much of the upside the company saw in the quarter came from cost-cutting. HP last year announced plans to slash 29,000 jobs from its workforce. While saving money is a good thing, companies can't just cut their way to profitability.  

Whitman, the third HP CEO since 2010, is beginning to see some reasons for optimism. However, even she noted in an interview with CNBC today that the turnaround will take several years. The company expects the second half to be better than the first and for 2014 to be even better, Chief Financial Office Kathie Lesjak told the Wall Street Journal. HP was also optimistic that new products now in the works will gain traction with customers.

As the economy continues its slow road to recovery, companies will increase spending on computer hardware, software and services. Gartner expects worldwide info-tech spending to hit $3.7 trillion this year, up 4.2% from a year earlier. That's an increase from an earlier forecast of a 3.8% gain.

Unfortunately, HP's main rival IBM (IBM) remains a formidable competitor. Big Blue recently reported a record quarterly profit. While revenue at the Armonk, N.Y., company is likely to be flat over the next two quarters, HP's sales are expected to decline. Dell (DELL), which is going private, also is showing some signs of improvements in stemming its own stunning decline.

Whether Whitman will get enough time to finish righting the HP ship remains to be seen.

Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr.


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3Comments
Feb 22, 2013 11:09PM
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HP didn't learn with Carly Fiorina...
Feb 22, 2013 8:59PM
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Maybe if HP would stop loading their machines with crap and useless "toys", and get serious about electronic media. Whoever sold them the bill of goods to furnish Windows 8 on the newer machines should be canned. Windows 7 was excellent, which replaced the travesty of Vista. When you have something gold, don't screw with it. Like many of my contemporaries have already done, my next system will not be Windows.
Feb 22, 2013 1:17PM
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Sometimes you have very few options as to where to shop. I'm out in an area where the closest store of any size is almost 100 miles away. We have no Target, nothing of that sort. It's either Wal Mart or the little mom and pop stores where you can't afford anything. I suppose that's the case in a lot of rural areas. Too bad, but not much can be done about it.
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