Feeds

Moody's cuts HP ratings

More creditworthy than Japan

  • alert
  • submit to reddit

High performance access to file storage

ComputerWire: IT Industry Intelligence

Credit agency Moody's Investor Services cut its ratings on Hewlett Packard Co's debt by a notch on Friday citing the "challenges and uncertainties" the company faces in integrating Compaq Computer Corp, which it acquired in May.

HP's senior unsecured debt was cut from A2 to A3, its long-term subordinated debt from A3 to Baa1, and preferred stock (shelf) from Baa1 to Baa2. Moody's also declared the outlook negative.

However, while HP becomes the latest tech firm to come out on the wrong side in a Moody's review, its debt is still rated way above the junk or near junk levels at which many telecoms firms are languishing.

Moody's said the combined HP/Compaq operation will face challenges exploiting cost synergies in "a very difficult economic and competitive environment." It noted that the company was still seeing operating losses in two segments that together account for 55% of revenues, and added that the weak demand environment will put continued pressure on revenues and profitability.

Those segments are personal systems and enterprise systems, which Moody's noted are "critical to the strategy of providing end to end hardware, software and service solutions." Because of the inevitable disruption as the integration of HP and Compaq continues, Moody's expects both businesses to continue to lose money over the near term.

Looking ahead, Moody's said it was taking a negative outlook on HP, because of the "likelihood of prolonged and deeper weakness in overall corporate and consumer demand" which could offset near term cost savings and delay a return to increased profitability. Perhaps more worryingly for Palo Alto, California, Moodys "remains concerned that full and consistent execution of the scale-based cost synergies could prove more challenging than expected."

On the plus side, Moody's paid tribute to HP's strong printer business, which it said generates solid and consistent profitability, as well as the consistent profitability of the overall services business.

Moody's also noted that HP showed "solid liquidity" and a "lowly leveraged balance sheet". It said it expected that HP's capital structure will remain conservative.

HP appeared to take a sanguine view of the action by Moody's, saying it was pleased that the firm recognized its strong balance sheet and liquidity.

"We're working diligently to achieve the merger synergy gains as rapidly as possible, HP added. "These gains will have a positive impact on our enterprise systems and personal systems groups, and we expect to restore profitability in these two businesses in 2003."

© ComputerWire.

Top three mobile application threats

More from The Register

next story
Dropbox defends fantastically badly timed Condoleezza Rice appointment
'Nothing is going to change with Dr. Rice's appointment,' file sharer promises
Audio fans, prepare yourself for the Second Coming ... of Blu-ray
High Fidelity Pure Audio – is this what your ears have been waiting for?
Record labels sue Pandora over vintage song royalties
Companies want payout on recordings made before 1972
Ex–Apple CEO John Sculley: Ousting Steve Jobs 'was a mistake'
Twenty-nine years later, post-Pepsi exec has flat-forehead moment
Zucker punched: Google gobbles Facebook-wooed Titan Aerospace
Up, up and away in my beautiful balloon flying broadband-bot
Apple DOMINATES the Valley, rakes in more profit than Google, HP, Intel, Cisco COMBINED
Cook & Co. also pay more taxes than those four worthies PLUS eBay and Oracle
Number crunching suggests Yahoo! US is worth less than nothing
China and Japan holdings worth more than entire company
prev story

Whitepapers

SANS - Survey on application security programs
In this whitepaper learn about the state of application security programs and practices of 488 surveyed respondents, and discover how mature and effective these programs are.
Combat fraud and increase customer satisfaction
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Top three mobile application threats
Learn about three of the top mobile application security threats facing businesses today and recommendations on how to mitigate the risk.
3 Big data security analytics techniques
Applying these Big Data security analytics techniques can help you make your business safer by detecting attacks early, before significant damage is done.