Related topics

HP posts $8.9bn loss on slow sales, charges in Q3

Revenues down in nearly every division

DVD it in many colours

As expected, Hewlett Packard's earnings slumped in the three months ending in July, causing the PC maker to post a third-quarter loss of $8.9bn, or $4.49 per share, which was in line with the high end of analyst estimates.

Much of that loss can be attributed to an $8bn write down of its Enterprise Services division, which is essentially Electronic Data Systems (EDS), the IT services company HP bought from Texas billionaire and former US presidential candidate Ross Perot for $13.9bn in 2008.

Enterprise Services has remained a sore spot for HP over the years, having gone through numerous rounds of layoffs and management changes, but in an earnings call on Wednesday, HP president and CEO Meg Whitman said the company is "taking aggressive steps to right the ship."

HP also previously announced that it would take a $1.2bn charge in Q3 due to impairment of the value of the Compaq brand name, which the company says will now be relegated to products for "basic computing at entry-level pricing."

Adjusting for these charges, the company actually earned $1.00 per share for the quarter, or $2bn.

Even given that adjusted figure, however, HP's earnings per share were down nine per cent from the previous year, and there's no disguising that revenues were down in nearly every segment of HP's business since a year ago, too.

Total revenues for the quarter were $29.7bn, down five per cent year over year.

Predictably, the Personal Systems Group – which comprises HP's core PC systems businesses – led the slump, with revenues down 10 per cent from Q3 2011. The consumer market was softest for HP, with consumer revenue down 12 per cent, while revenue from commercial customers was down nine per cent.

That better performance in the enterprise market may explain why desktop PC sales were strongest for HP, with the number of desktop units declining a comparatively modest six per cent. Notebook unit sales, on the other hand, dropped a worrying 12 per cent, for an overall unit sales decline of 10 per cent.

These results were in line with Dell's similarly disappointing numbers, which were announced on Tuesday. During HP's earnings call, Whitman acknowledged that the overall PC business was weak and that inventory in the channel remains high, but she remains bullish on HP's strategy in this area.

"We are under attack by very strong competitive pressures and we are going to respond," Whitman said, adding that she believes HP has the strongest PC product lineup it's had in a long time.

Revenues for HP's Imaging and Printing Group were also down, dipping three per cent from the previous year. Here again, the consumer market was particularly weak, with consumer hardware sales down 13 per cent. Commercial imaging and printing sales were actually up four per cent.

The Enterprise Servers, Storage, and Networking division saw its revenues decline four per cent. High-end server sales suffered the most, with Business Critical Systems revenue down 16 per cent. Commodity servers declined three per cent, and storage revenue was down five per cent over the previous year.

Networking revenues actually increased six per cent, however, which Whitman attributed mainly to strong networking equipment sales in China.

HP's services divisions mostly saw flat revenues, including both its IT and financial services divisions. While IT services revenues were down three per cent overall, that was mostly due to a 6 per cent decline in IT outsourcing revenue, while other types of IT services remained flat.

That left software the one relative bright spot for HP, with revenues up 18 per cent, mostly due to HP's $10.24bn acquisition of Autonomy in 2011. Even these encouraging numbers may be deceptive, however, as the number of actual software licenses purchased grew only 2 per cent, which suggests HP isn't taking on many new engagements. By comparison, support revenues grew 16 per cent and revenue from software-related services grew 65 per cent.

Despite some gloom over Palo Alto, however, Whitman remains optimistic. "During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet," she said in the company's earnings statement. "We continue to deliver on what we say we will do." ®

Sponsored: 10 ways wire data helps conquer IT complexity