Feeds

Moody's cuts HP ratings

More creditworthy than Japan

  • alert
  • submit to reddit

Secure remote control for conventional and virtual desktops

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.

Secure remote control for conventional and virtual desktops

More from The Register

next story
Ex-US Navy fighter pilot MIT prof: Drones beat humans - I should know
'Missy' Cummings on UAVs, smartcars and dying from boredom
Facebook, Apple: LADIES! Why not FREEZE your EGGS? It's on the company!
No biological clockwatching when you work in Silicon Valley
The 'fun-nification' of computer education – good idea?
Compulsory code schools, luvvies love it, but what about Maths and Physics?
Doctor Who's Flatline: Cool monsters, yes, but utterly limp subplots
We know what the Doctor does, stop going on about it already
Happiness economics is bollocks. Oh, UK.gov just adopted it? Er ...
Opportunity doesn't knock; it costs us instead
'Cowardly, venomous trolls' threatened with TWO-YEAR sentences for menacing posts
UK government: 'Taking a stand against a baying cyber-mob'
Sysadmin with EBOLA? Gartner's issued advice to debug your biz
Start hoarding cleaning supplies, analyst firm says, and assume your team will scatter
prev story

Whitepapers

Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Cloud and hybrid-cloud data protection for VMware
Learn how quick and easy it is to configure backups and perform restores for VMware environments.
Three 1TB solid state scorchers up for grabs
Big SSDs can be expensive but think big and think free because you could be the lucky winner of one of three 1TB Samsung SSD 840 EVO drives that we’re giving away worth over £300 apiece.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.