HP posts $8.9bn loss on slowing PC sales, EDS woes
HP has posted a massive $8.9 billion quarterly loss as personal computer sales shrank again and it swallowed a huge write-down linked to its $13.9 billion purchase of Electronic Data Systems (EDS).
With PC sales falling 10%, the company also reduced its full-year earnings outlook slightly to the low end of its previous range, responding to a faltering PC market as well as tough economic conditions in Europe and China, where growth too is slowing.
HP, which employs more than 300,000 people globally, is undergoing a multi-year restructuring aimed at focusing the sprawling corporation on enterprise services
According to the company’s chief financial officer, HP will have gone through about half of its targeted job reductions by the end of the fiscal year. It cut 4,000 jobs in fiscal third quarter and will likely have shorn 11,500 jobs by end of fiscal 2012, prompting hope from investors.
“HP is definitely showing progress in terms of turning around the company,” said Sterne Agee analyst Shaw Wu. “One of the clear signs is a better predictability of earnings.”
There will be challenges ahead that could create some variability in performance
CEO Meg Whitman has urged investors to be patient as she works to jumpstart revenue and cut costs.
“We are still in the early stage of the turnaround. There will be challenges ahead that could create some variability in performance,” said Whitman. “But I’m confident in our ability to work through them and get to where we want to be.”
HP took a charge of $10.8 billion, mostly related to the writedown of its EDS services business, which it had announced earlier this month.
HP, which like smaller rival Dell is struggling to offset faltering PC sales with services revenue, last year posted profit of $1.9 billion for the same period. Both HP and Dell are struggling to defend their PC market share from Asian rivals such as Lenovo and Acer.
PCs hit hard
The massive quarterly loss was expected as the company said earlier this month that it would take a non-cash charge of $8 billion, primarily from writing down the value of its 2008 acquisition of EDS for $13.9 billion.
Revenue from all of HP’s main business units fell, with the personal computer division unsurprisingly recording the steepest drop of 10%, to $8.6 billion.
Services revenue dipped just 3% to $8.8 billion, edging past Personal Systems Group – which includes PCs – to become the company’s largest sales generator in the quarter that ended 31 July.
HP’s business continued to be hit by a slowing economy in most of its biggest regions, including Western Europe and China.
The “pretty soft underlying macro economic environment” is continuing into the current quarter, Lesjak said but added that there were some “bright spots” such as Eastern Europe and Japan.
In personal computers, HP is facing both a weak consumer market and competitive pricing, Lesjak added.
HP is also revamping its enterprise services unit, which caters to corporations. Whitman said HP was changing the leadership structure in the unit to bring more accountability and moving away from offering low-end services, an area that EDS specialises in.