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Hewlett-Packard earnings miss estimates

Computer and printer maker Hewlett-Packard Co. Thursday posted a quarterly profit that fell short of Wall Street estimates, citing weak results in its servers and storage products used by large businesses and organizations.
/ Source: Reuters

Hewlett-Packard Co. on Thursday surprised the market by posting quarterly earnings a week before they were expected and well below forecasts, on weak sales of computer servers and storage gear.

H-P warned that the weakness would extend into the current quarter, and its shares dropped to a 15-month low.

The results raised new questions about the resurgence in tech spending. Chipmakers and software companies have warned recently of weakening demand. But analysts saw signs that H-P rivals like Dell Inc. and International Business Machines Corp. were thriving.

H-P posted a profit of $586 million, or 19 cents a share, for the fiscal third quarter ended July 31, up from $297 million, or 10 cents a share, a year earlier. Excluding items, earnings rose to 24 cents a share from 23 cents a year ago.

The average Wall Street estimate was for 31 cents a share from operations, with estimates ranging from 29 cents to 33 cents, according to Reuters Estimates.

Revenue rose 9 percent, to $18.9 billion from $17.3 billion. Analysts’ average estimate was $19.1 billion.

Revenue from the personal computer business grew 19 percent in the quarter, services 12 percent and software 17 percent.

On a conference call with analysts, H-P Chairman and Chief Executive Carly Fiorina said demand weakened at the end of the quarter as the economy took a “stutter step.”

Fiorina also blamed H-P’s own “unacceptable execution” problems in the server and storage business, promising management changes at the group, which accounts for 17 percent of H-P’s revenue. Servers are the workhorse of companies’ and organizations’ computer networks.

The company said a new order processing system in the U.S. contributed to the results shortfall as well.

“They are fighting too many wars on too many fronts with Dell and losing,” said Gabriel Lowy, analyst with Blaylock & Partners. He said he was not surprised by the earnings shortfall and has been recommending that his clients sell shares of H-P and buy those of Dell.

Dell, which has been battling with H-P for market share, is due to report quarterly earnings later on Thursday and is expected to post strong results.

“It really does feel like Dell’s got them in their sights,” said Marty Shagrin, an analyst at money management firm Victory Capital. “I would not be surprised to hear that Dell’s server business had very strong results.”

Another rival, IBM, said Thursday that it would boost its planned hiring this year by 8,800 to 18,800. “We do see growth, unlike some of our competition,” said IBM spokesman John Bukovinsky.

“IBM is doing well,” said Gartner analyst Martin Reynolds.

The long-struggling server and storage business had an operating loss of $208 million in the third quarter — widening from $20 million a year earlier — but is expected to turn a profit in the current quarter, H-P said. Revenue in that business dropped 5 percent to $3.35 billion.

The company said it continued to see declines in prices of its storage products. EMC Corp., which competes with H-P in storage, recently reported a 33 percent increase in quarterly revenue.

Revenue from storage alone was down 15 percent to $709 million in the third quarter.

“Our competitive position is not where we would like it to be,” Fiorina said of the storage business.

H-P spokesman Mike Moeller declined further comment on the planned management changes in servers and storage.

H-P said it expects fourth-quarter profit of 35 cents a share to 39 cents a share before special items. The low end of the Reuters Estimates range had been 41 cents a share. H-P forecast fourth-quarter revenue of $21 billion to $21.5 billion, in line an average estimate of $21.26 billion.