HPQ HP Inc

By Robert McMillan 

Hewlett-Packard Co. posted a 13% drop in earnings for the July quarter as the company reported its 15th revenue decline in the past 16 quarters.

H-P is set to split into two entities on Nov. 1, but the company continues to struggle as technology shifts toward mobile and cloud computing.

H-P's split will create very different companies: a cash-generating PC-and-printer behemoth that racked up $56 billion in revenue its most recent fiscal year, and a $55 billion server, services and software company that Chief Executive Meg Whitman has portrayed as more likely to grow through acquisitions.

For the fiscal year ending Oct. 31, the company narrowed its per-share earnings estimate to $3.59 to $3.65, from its previous estimate for per-share profit of between $3.53 and $3.73, excluding certain items.

Shares fell 1.8% to $26.86 in recent after-hours trading as revenue missed expectations.

For its third quarter, ended July 31, H-P reported net income of $854 million, or 47 cents a share, down from $985 million, or 52 cents, a year earlier. Excluding separation costs, write-downs of data center assets and other items, per-share earnings fell to 88 cents from 89 cents. The company had guided for 83 cents to 87 cents a share.

Revenue decreased 8% to $25.35 billion. Excluding currency fluctuations and divested businesses, revenue dropped 2%. Analysts polled by Thomson Reuters were looking for $25.44 billion.

Come November, the new companies will face a separate set of challenges. Hewlett-Packard Enterprise must deal with a rapidly changing corporate computing environment. HP Inc.'s profits will come from its printer business, which sells lucrative ink cartridges. But the company will face a tough challenge with its PC business.

"When HP Inc. is independent, you're probably going to see them becoming more scrappy," said Jay Chou, an analyst with industry research firm IDC. "A lot of their products are just commodity-based PCs. There's not a lot of room for extra revenue from things like services and so on."

H-P is the world's number-two PC vendor, behind Lenovo Group Ltd. But unit sales of H-P PCs fell nearly 10%, year-over-year, during the second quarter, according to IDC. And even the introduction of Microsoft Corp.'s new Windows 10 operating system has failed to ignite sales of new personal computers.

Part of the problem is that emerging markets such as China, Indonesia and Latin America are snubbing PCs for less-costly alternatives, said Mr. Chou. "We're seeing a lot of these emerging markets, in a lot of cases, skip the PC altogether and use either a smartphone or tablet as their primary way of getting on the Internet," he said.

H-P's stock has been hit hard over the past year, dropping 22%. That's a worse performance than H-P's biggest rival, International Business Machines Corp., whose shares have fallen 20% over the same period.

Weakness in the company's core business and currency fluctuations are hurting it, too. Software revenue declined 6% in the latest quarter, while personal systems revenue dropped 13% and printing revenue slid 9%.

Write to Robert McMillan at Robert.Mcmillan@wsj.com

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(END) Dow Jones Newswires

August 20, 2015 16:48 ET (20:48 GMT)

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