Arik Hesseldahl

Recent Posts by Arik Hesseldahl

HP Closes the Book on 2013, but 2014 Doesn’t Look Much Better

hp_logo_darkHewlett-Packard, the computing and IT giant that is heading into its third year of a multiyear turnaround effort will post quarterly earnings after the markets close on Tuesday. It will be the first quarter reported since the company held its annual meeting with financial analysts about six week ago. As such, there shouldn’t be many surprises. But this is HP, and its last few years have been marked by a long-ish string of mostly negative surprises.

At that analyst’s meeting on Oct. 9, CEO Meg Whitman insisted that the turnaround effort she’s been leading since taking over the company in 2011 is on track. And 2014 will be “a pivotal year,” Whitman said, one that will be incrementally better, though apparently not punctuated by growth in revenue, as previously promised.

Tuesday’s earnings report will give the latest indication as to whether or not Whitman is going to pull off this turnaround. Analysts are expecting sales to hit $27.9 billion, with per-share profits of $1. Chris Whitmore, an analyst with Deutsche Bank Securities, expects results more or less in line with the consensus.

HP has experienced a mix of good and bad news this quarter, Whitmore wrote in a note to clients published today. On the personal-computer front, Dell, a big competitor, had been a little distracted by its $25 billion buyout. For HP, that led to some share gains of about 1.5 percent against the backdrop of an overall PC market that Whitmore says shrank by more than eight percent. Good news overall, but, as usual, the pricing pressure on PCs has been unrelenting, and will probably hurt HP’s profit margins.

The picture is not as bright in printing, where recent earnings reports by Lexmark and Xerox suggest that overall demand is weak. A batch of new printers that HP released earlier may help out.

Even tougher is the enterprise business, where more declines in the Business Critical Server business are expected. And while there were gains in the mainstream server business, they are unlikely to be much of an offset. Add in weak global demand for IT infrastructure, and share losses in the storage business to NetApp and EMC, Whitmore says, and the picture of the enterprise business gets even muddier.

Then there’s the service business, which is still struggling to overcome its reputation as a bit of a money pit. Investments meant to rebuild it will take “considerable time,” Whitmore says. “Increasing the size and depth of HP’s Services bench will likely take multiple quarters before translating in to improving market share performance. As a result, we continue to expect a long, slow turnaround in EDS,” he writes.

Whitmore’s biggest concern is HP’s geographical exposure. HP does about 36 percent of its business in Europe, and about 30 percent in Asia. Those are markets where other big IT suppliers, including Cisco Systems, EMC, NetApp and Teradata have all reported weaknesses. The shutdown of the U.S. federal government during the quarter — HP does about five percent of its business with the government — cannot have helped.

Whitmore says he expects HP to stick to its guidance for the coming year: The company said last month that it expects to earn between $3.55 and $3.75 a share in 2014. But that’s not to say the year isn’t going to be a tough one: “We do not see a quick fix for any of these issues and we anticipate ongoing revenue and profitability headwinds for HP to remain.”

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The problem with the Billionaire Savior phase of the newspaper collapse has always been that billionaires don’t tend to like the kind of authority-questioning journalism that upsets the status quo.

— Ryan Chittum, writing in the Columbia Journalism Review about the promise of Pierre Omidyar’s new media venture with Glenn Greenwald