Advertisement

SKIP ADVERTISEMENT

Weak Sales and a Large Write-Down Give H.P. a Loss

SAN FRANCISCO — The pressure is building for Meg Whitman to make a miracle happen.

Ms. Whitman is trying to transform Hewlett-Packard, the company she runs, for a world where its historical dominance in personal computers and printers matters less. The new businesses involve more smartphones, software and big data centers, where H.P. has less presence. She and others agree this will take years, but before that, the company may start to run into the harsh realities of creating growth amid long-term decline.

On Wednesday, H.P. reported shrinking revenue in its fiscal third quarter, lower sales in all of its major businesses, and a large net loss associated with accounting write-downs from layoffs and an unsuccessful acquisition.

While Ms. Whitman has rebuilt H.P.’s balance sheet somewhat from the lows of previous quarters, she forecast dim near-term prospects for personal computers and printers, which were once H.P.’s most important cash-generating businesses.

“This is a big ship to turn. I feel pressure every day,” Ms. Whitman said in an interview on Wednesday after the company announced its results. “We have to turn around the sales trajectory on our products.”

She added, however, that she did not think H.P. was in as dire shape as I.B.M. was in 1993, when it lost more than $15 billion in three years. “We are making money,” she said. “Personal computing is not dead. Printing is not in decline across the board.”

The company reported that revenue dropped 10 percent in its PC business and 3 percent in printers from the same quarter last year. Unit sales of printers fell 23 percent. Ms. Whitman said this was part of a conscious decision to move away from relatively low-value customers.

Over all, H.P. reported a net loss in its third fiscal quarter of $8.9 billion, or $4.49 a share, largely because of a major write-off in the value of its Electronic Data Systems unit. Revenue fell 5 percent to $29.7 billion. In the year-ago quarter, the company reported net income of $1.9 billion, or 93 cents a share, on revenue of $31.2 billion.

The Electronic Data Systems unit was purchased for $13.9 billion and has not yielded the growth H.P. had hoped for. The company also took a charge of more than $1 billion to cover layoffs of 27,000 employees, announced in May. Without the restructuring costs in the quarter, H.P. would have had net income of $2 billion, or $1 a share.

Image
Meg Whitman, chief executive of Hewlett-Packard, said she had “a big ship to turn.”Credit...Ronda Churchill/Bloomberg News

H.P. announced the write-downs on Aug. 8, so the results came as little surprise to Wall Street. H.P.’s stock rose modestly after the announcement, then fell again as Ms. Whitman and others warned analysts in a conference call of significant challenges for both H.P. and the industry.

“The results were O.K., but the tone was pretty sobering,” said A. M. Sacconaghi, an analyst with Bernstein Research. “There is a lot of belief that H.P. can’t grow, and there are questions about whether they can keep market share. If you’re losing share in markets with no growth, you’ve got a problem.”

H.P.’s lackluster results followed a disappointing sales forecast on Tuesday by Dell, one of H.P.’s largest competitors in PCs. Dell reported an 18 percent drop in net income from a year ago, largely because of weak PC sales.

While H.P. is still among the world’s largest technology firms in terms of revenue, it faces new competitors, including both Chinese PC makers and tablet players like Apple and Google, which have more cash. The company said it had $9.9 billion in cash, up from the previous two quarters but down from a year ago. Google has $34.5 billion, Microsoft $63 billion and Apple $116 billion.

Ms. Whitman either has to revive existing businesses or get newer businesses like networking and advanced data storage built up quickly.

Much of the pain H.P. has felt stems from a slowdown in worldwide demand for personal computers. The weak economy in Europe also contributed.

The PC business has been particularly hard for H.P. Last August, Léo Apotheker, then the chief executive, said he might sell the company’s PC business, creating disarray with H.P.’s customers and sales force. Ms. Whitman replaced Mr. Apotheker in September and reversed his decision, but much of the damage was done.

According to the research firm IDC, in the second quarter of this year, H.P.’s share of the 86.7 million PCs sold worldwide was 13.4 million units, or 15.5 percent of the market, down from 17.6 percent a year ago. China’s Lenovo was second, with a 14.9 percent share, up from 11.9 percent. World demand for PCs was basically flat, reflecting not only slow economic growth but a shift toward smartphones and tablets. H.P. failed in its attempt to enter the tablet market with its 2010 purchase of Palm for $1.2 billion.

The company now hopes to reignite interest in very lightweight, touch-screen-enabled laptop computers, called ultrabooks. A few of these computers have come on the market to lackluster sales, but many more are expected by the end of the year.

“We’ve accomplished a number of things,” Ms. Whitman said of the last year. “The drama is way down. The leaks are down. We meant what we said and we said what we meant.”

A version of this article appears in print on  , Section B, Page 2 of the New York edition with the headline: Weak Sales and a Large Write-Down Give H.P. a Loss. Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT