HP 3Q profit drops 19 percent, PCs and printer ink still weak

By Jordan Robertson, AP
Tuesday, August 18, 2009

HP 3Q profit drops 19 pct, weak PC, ink sales

SAN FRANCISCO — Hewlett-Packard Co.’s profit dropped 19 percent in the latest quarter, dragged by ongoing weakness in sales of personal computers and printer ink.

The Palo Alto, Calif.-based company reported Tuesday that consumer spending on PCs is improving, and business in China was particularly good. Corporations are still being tightfisted, though.

Because of the recession, 2009 is shaping up to be the worst year in nearly a decade for the PC industry. HP, the world’s No. 1 PC maker, has been branching out into other areas, like technology services and computer networking, but the PC business still makes up nearly a third of its revenue.

Sales in HP’s PC business eroded 18 percent in the three months ended July 31, even as the number of units sold ticked up 2 percent. The discrepancy is explained by the fact PC makers have been slashing prices, a trend that has also hurt rivals. For instance, Wall Street projects a 23 percent sales drop at Dell Inc., the No. 2 PC maker, which will reports its latest quarterly numbers Aug. 27.

HP reported after the market closed that it earned $1.64 billion, or 67 cents per share, in the fiscal third quarter. A year earlier the company made $2.03 billion, or 80 cents per share.

Excluding one-time items, HP earned 91 cents per share, a penny better than the average estimate of analysts polled by Thomson Reuters.

Sales fell 2 percent to $27.45 billion, slightly ahead of analysts’ projections for $27.26 billion.

Revenue from printing supplies was down 13 percent. One of those supplies — printer ink — has long been one of HP’s biggest moneymakers, but has been facing competition from generic, cheaper brands.

HP has been reluctant to call a bottom in the PC market, as chip maker Intel Corp. did in April — one of the first bullish signs about a turnaround in that sector. Cathie Lesjak, HP’s chief financial officer, said in an interview Tuesday that PC demand appears to have “stabilized.”

Lesjak said the decline in printing supplies revenue was mostly caused by currency fluctuations and changes in the way HP manages inventory at resellers. She said she expects the supplies business to improve over the next couple of quarters.

Aggressive cost-cutting has been a major help to HP’s finances and has been a hallmark of CEO Mark Hurd’s 4½ years at the company.

HP is cutting 24,600 jobs as part of last year’s acquisition of Electronic Data Systems, a technology services firm, and in May announced a separate round of 6,400 cuts involving workers from the product divisions. HP had about 320,000 workers before the layoff plans were announced.

The company’s fiscal fourth-quarter profit outlook for $1.12 per share, excluding one-time items, is better than the $1.07 per share that analysts were expecting. Its forecast for revenue to rise about 8 percent quarter-over-quarter is in line with analyst estimates.

HP also reaffirmed its full-year 2009 revenue outlook.

HP shares were down 87 cents, or 2 percent, to $43.09 in extended trading after closing earlier Tuesday up 85 cents, or 2 percent, at $43.96.

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