HP profit slumps 13% on weak PC and inks ales, revenue falls short

By
Jordan Robertson, AP Technology Writer
February 19, 2009, 12:25 AM ET
3 min read

SAN FRANCISCO -- Hewlett-Packard's HPQ quarterly profit dropped 13%, and sales ticked up just 1%, as even the technology company's cash-cow printer ink business was hobbled by the recession.

The world's top seller of personal computers also cut its 2009 guidance, but it was still in line with Wall Street's expectations.

HP shares fell $1.08, or 3.2%, to $33 in extended trading, after closing down 26 cents during the regular trading session, before the Palo Alto, Calif.-based company reported its earnings.

Crippled technology spending slammed all but one of HP's major business lines, including PCs and servers. Only HP's services division, which bulked up with its $13.9 billion acquisition of Electronic Data Systems, saw an increase.

Services also have been strong for rival IBM, since corporations are trying to save money by outsourcing some of their technology chores.

HP earned $1.85 billion, or 75 cents a share, in the three months that ended Jan. 31. That compares with profit of $2.13 billion, or 80 cents a share, a year ago.

Without one-time costs, HP earned 93 cents a share, matching analyst estimates.

HP's sales of $28.8 billion fell short of Wall Street's forecast by more than $3 billion, however. Analysts were expecting $31.9 billion in revenue. Without currency fluctuations, HP said its quarterly sales increased 4% over last year.

The pain of tighter budgets was felt across nearly all of HP's businesses.

Sales for the printer and ink division, which contributes more than 40% of HP's operating profit, fell 19% to $6 billion. That includes a 7% decline in supplies, a typically strong area that includes things like ink cartridges, which are among HP's biggest moneymakers.

The personal computer division was also wounded, with sales falling 19% to $8.8 billion.

HP's services division more than doubled to $8.7 billion, mostly due to the addition of EDS. HP is cutting 24,600 jobs as part of that deal.

HP predicted that it would earn between $3.76 and $3.88 per share in 2009, excluding one-time costs. Analysts polled by Thomson Reuters were expecting profit of $3.77 per share on that basis.

The financial crisis has mauled PC sales for all the big manufacturers, but HP managed to eke out some gains last year. HP owned nearly a fifth of the worldwide PC market in 2008, having expanded its lead over rivals Dell, Acer, Lenovo Group and Toshiba, according to the latest data from research firm IDC.