US drags down HP sales

PCs up, server down

HP produced sales of $17.9bn for Q1, ended January 31, down slightly on the previous quarter. But cost-cutting fed through to a 49 per cent increase in earnings to $721m.

But revenues were less than consensus analyst forecasts of $18.5bn and the reason for this, HP says, is weaker commercial IT spending in the US and Japan. Particularly hard hit is the company's enterprise division. Europe and Asia-Pac, however, are picking up nicely. The company is still sticking to its revenue forecast of 2-4 per cent growth for the year, but "on the other hand, it's very difficult, CEO Carly Fiorina said in a conference call.

Personal Systems

On the upside, HP is now making a operating profit from selling PCs, which is nice. Admittedly it's a small profit - $33m on Q1 sales up 2 per cent to $5.1bn. And much of those sales will come from the seasonal pre-Christmas uptick for consumer desktops and handhelds. And the profit turnaround is attributed by HP to cost-cutting and channel improvemens - and how much more cost-cutting is there to go?

But considering the division made an operating loss of $68 million the previous quarter, this could represent a nice story for the future.

Enterprise Systems

It's a different tale at the Enterprise division which saw revenue fall sequentially 6 per cent to $3.7bn, reflecting "continued soft demand in the United States and Latin America". And it continues to lose lots of money, although less than before - the Q1 operating loss was $83m, against $129m in the previous quarter.

The hardware guys are having a torrid time, with business-critical server revenue down 12 per cent sequentially. This reflects a "weak UNIX market and a tough quarter for NonStop servers in the telecommunications and finance industries".

Industry-standard server (i.e Intel) revenue was down 5 per cent sequentially, reflecting soft market demand. Storage revenue was down 5 per cent sequentially. Software revenue was flat sequentially.

Imaging

And so to HP's cash cow, printers and imaging. This brought in revenues of $5.6bn for the quarter, producing an operating profit of $907m, down 4 per cent sequentially. Strong consumer demand offset weak enterprise IT spending.

Services and Finance

Here revenue was $3 billion, down 3 per cent sequentially and operating profit was $341m, down 6 per cent sequentially. HP Services operates at, shall we say, the less strategic end of the services business, majoring on helpdesk and contract support.

And let's not forget HP Financial Service, the credit arm, which made an operating profit of $14m on revenues of $517m. The previous quarter, HP made a $101m operating loss from this division, on the back of "bad debt expense ... primarily in Latin America and EMEA". ®

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