HPQ HP Inc

   (FROM THE WALL STREET JOURNAL 8/21/15) 
   By Robert McMillan 

As Hewlett-Packard Co. prepares to split itself in two, it is confronting a harsh reality: Fewer people want to buy a personal computer.

H-P on Thursday reported a 13% drop in quarterly profit. Revenue at the technology giant fell 8%, the 15th decline in the past 16 quarters, dragged down by weak PC sales and currency woes.

The results were H-P's last before a planned Nov. 1 breakup into a PC-and-printer maker that racked up $56 billion in sales last year, and a $55 billion server, services and software company. The results suggest tougher times ahead as demand shifts toward mobile and cloud computing from PCs.

H-P is faring better than some PC rivals, but revenue from its sizable consumer business dropped a sharp 22% during the period ended July 31.

"PCs, and print to some degree, had a tough quarter," H-P Chief Executive Meg Whitman said in an interview. "We think, by the way, that these market conditions are going to continue for at least several quarters."

H-P is the world's number-two PC seller, behind Lenovo Group Ltd. Unit sales of H-P PCs fell nearly 10%, year-over-year, during the calendar second quarter, according to market researcher IDC. The recent introduction of Microsoft Corp.'s Windows 10 operating system failed to spur replacement sales.

Jay Chou, an IDC computer analyst, said hopes for robust PC sales in emerging markets haven't panned out. China, Indonesia and Latin America are snubbing PCs for less-costly alternatives, Mr. Chou said.

"We're seeing [customers in] 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.

Results were brighter at the corporate-focused businesses that will form the core of the new Hewlett-Packard Enterprise. Its revenue rose 2% from the year-earlier period, driven by strong sales of servers and networking equipment.

HPE will primarily sell computers and software that corporations use to run their operations. Still, that business is threatened by big companies renting computing power from Amazon.com Inc., Microsoft and International Business Machines Corp., among others.

Ms. Whitman said that she was pleased with the results, and encouraged by the services group where profit margins improved to 6% of revenue from 4.1% a year ago. "We're now rounding the corner, where the growing businesses are bigger than the declining businesses," she said.

While H-P legally won't split for two months, the company divided itself operationally on Aug. 1, duplicating information technology systems and bank accounts, and creating new international legal entities.

For its fiscal year ending Oct. 31, the company narrowed its projected earnings per share to $3.59 to $3.65, from its previous estimate of between $3.53 and $3.73, excluding certain items. Analysts surveyed by S&P Capital IQ had been expecting $3.64.

Chief Financial Officer Cathie Lesjak said H-P pulled ahead some earnings from the current quarter by shipping more products before its Aug. 1 transition as an insurance policy against a possible computer system meltdown. The strong dollar and slowing PC sales also dampened results, she said.

For the quarter ended July 31, HP reported net of $854 million, or 47 cents a share, down from $985 million, or 52 cents, a year earlier. Excluding certain items, per-share earnings fell to 88 cents from 89 cents. The company had projected earnings on that basis of between 83 cents and 87 cents a share.

Revenue fell 8% to $25.3 billion. Excluding currency fluctuations and divested businesses, the company said revenue would have dropped 2%.

H-P's stock has been hit hard over the past year, dropping 22%. Its shares gained 10 cents in late trading after finishing off 1.4% at $27.35 in 4 p.m. trading.

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(END) Dow Jones Newswires

August 20, 2015 21:05 ET (01:05 GMT)

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