HP Reports Mixed Quarter on Weak PC Sales

Hewlett-Packard on Tuesday reported strong profits for its first fiscal quarter of 2011 but the results were dampened by weakness in its PC and services divisions.

Hewlett-Packard reported a jump in profit for the first quarter of its 2011 fiscal year but sales were dragged down by weakness in its PC and services divisions.

The poor performance from those groups prompted HP to lower its revenue forecast for the year, causing its share price to slump 12 percent after the results were announced.

"If you use Q1 as a marker, it's clear we do a lot of things well at HP. It's also clear that we have isolated areas that we need to improve," CEO Leo Apotheker told reporters on a conference call.

HP's profit for the quarter ended Jan. 31 was US$1.36 per share before one-time items, up 27 percent from a year earlier and ahead of the $1.29 per share that financial analysts had expected, according to a consensus poll from Thomson Reuters.

Revenue was $32.30 billion, up 4 percent from a year earlier but below the $32.96 billion that analysts had been looking for.

Revenue from HP's services division declined 2 percent from last year to $8.6 billion. It did well with bigger, long-term deals, but short term contracts for IT outsourcing and application services fared poorly, Apotheker said.

Revenue from its Personal Systems Group declined by 1 percent, to $10.4 billion. Sales of business PCs were up 11 percent, HP said, but the growth was offset by weak sales to consumers, especially for netbooks computers. HP has also had channel problems in China, though Apotheker said the company is "getting past the issues."

HP's enterprise hardware business fared better. Revenue from servers, network and storage gear climbed 22 percent to $5.6 billion. And revenue from printers and related products increased by 7 percent to $6.6 billion, HP said.

"We reported good results across most of the business but we have opportunities to improve growth in a few areas," Apotheker said.

HP's shares ended the regular trading day at $48.23, down 1 percent. Following the earnings announcement they slumped more than 12 percent in the after-hours markets, to $42.40.

Apotheker took the reins at HP last November and is in the midst of a minor makeover to improve HP's profitability and competitiveness. He's due to outline his plans for the company at an event in San Francisco next month.

The former SAP executive is expected to expand HP's efforts in enterprise software, as well as other profitable areas such as networking and storage. On Tuesday he said he'll describe HP's view of technology trends and explain how they mesh with HP's products and services.

HP is also expanding its focus on mobile gadgets. Earlier this month it announced a tablet PC and two smartphones based on the webOS software it acquired when it bought Palm last year.

HP is also shuffling its board, replacing four directors that were involved in the decision to oust CEO Mark Hurd last year. The new members include Patricia Russo, the former CEO of networking vendor Alcatel-Lucent, and Meg Whitman, who used to run eBay.

Copyright © 2011 IDG Communications, Inc.

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