Shares of Hewlett-Packard Co. are feeling the downdraft of Dell Inc. , whose shares plunged 18 per cent on Wednesday, following disappointing quarterly announcements.
HP shares are off more than 4 per cent this session, as the world’s largest PC and printer firm prepares to release its own quarterly results after the market close.
Executives at both companies have blamed a lot of their weak performance lately on tough conditions in Europe. But their problems are ultimately more fundamental than that.
The trouble for both Dell and HP is that the markets they serve are rapidly shifting. Tablets and smartphones are infringing on the traditional role of PCs, and cloud services and social networking sites are reducing the amount of documents and photos people print.
On Tuesday, Dell forecasted a 2- to 4-per-cent revenue gain this fiscal quarter, to between $14.7-billion and $15-billion (U.S.), which was short of the $15.4-billion the Street had been expecting. For the previous quarter, the company reported that year-over-year profit dropped by one-third and revenue slipped 4 per cent.
In its last earnings announcement, HP reported that all of its major businesses contracted. Weak results and a disappointing outlook left the Street calling for greater detail of management's turnaround strategy.
Today, analysts expect HP to report that profit tumbled 55 per cent and sales fell 5.5 per cent in the most recent quarter.
Both Dell and HP have recently sold the market stories of reinvention, telling investors that they are transforming themselves into purveyors of a wider and more lucrative range of technology products and services. The stocks initially rose on the optimism, only to sink back when management didn’t deliver fast enough.
Meg Whitman, who joined HP as CEO last September, has spoken about the need to cut costs and invest more in research and development, which dropped by one-quarter over the last six years.
Last week, rumours swirled that to revive HP’s innovation channel she would cut 25,000 jobs, or about 8 per cent of the company, and redirect savings into R&D.
If HP makes such an announcement today, the stock could climb in after market trading. But without drastic steps, it’s hard to believe that anything in the quarterly results will propel the share price upward.