Tuesday, May 17, 2011

HPQ 2Q Earnings

Hewlett Packard dropped almost 10% after it missed 2Q earnings. HP took a really big hit today, plunging bellow its 52 Week Low of $37.32.

HP posted $31.3 billion profit, or $1.05 a share, significantly lower than what analysts had expected ($1.23). HP’s revenue was $31.1 billion versus expectations of $31.8B. Quarterly revenue generated by the company’s personal systems group, its largest business segment, declined 5% from the same period last year as sales of both desktop and laptop PCs slipped. The company lowered guidance for the next quarter and is expecting to earn $0.90 per share.

At this point we see two primary factors for company’s performance. The first factor is the weakening computer demand all over the world. On the top of that, the earthquake in Japan has also reduced demand for HP's products in the region and increased logistics costs, as the company needs to find alternate suppliers and ship more by air. The second factor, and probably as much important as first one, is the company’s management. It seems that company has been struggling and delivering inconsistent results since Mark Hurd was replaced by Leo Apotheker. Its revenue for the fiscal quarter ended Jan. 31 increased 3.6% to $32.3 billion, coming in below the company's projection of $32.8 billion to $33 billion. In February, H-P also revised down its earnings-per-share and revenue targets for the current fiscal year.

Recently Mr. Apotheker sent email to senior 10 executives that was leaked and resulted in a major sell off by investors. In his email Mr. Apotheker mentioned that HP needs to cut back on expenses and slow down hiring; “We must watch every penny and minimize all hiring." With this pessimistic outlook and weakening demand we think that our position in HP should be revaluated.


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