The Hewlett-Packard Co. logo is displayed outside the company's HP Enterprise Services unit in Plano, Tex., in this file photo.Mike Fuentes/Bloomberg
Hewlett-Packard Co. issued a profit forecast that fell short of estimates, hurt by slumping personal-computer sales that underscore the challenges facing the business when it splits later this year.
Profit before certain items for the fiscal fourth quarter, which ends in October – the last before the separation in November – will be 92 cents to 98 cents a share, the Palo Alto, California-based company said in a statement Thursday. Analysts had projected $1, according to an average of estimates compiled by Bloomberg.
Chief Executive Officer Meg Whitman is splitting Hewlett– Packard into two businesses, one offering technology and services to businesses – and another selling PCs, printers and other gadgets to consumers. While that's aimed at making them more responsive to market changes, it also makes each one more vulnerable to swings in demand. PC shipments fell 9.5 per cent in the second quarter, as consumers in emerging economies bought fewer PCs and corporations moderate spending on technology.
"Meg Whitman's under tremendous pressure to dial up something and they haven't been able to do it through their acquisitions," said Dan Morgan, a senior portfolio manager with Synovus Securities Inc., which holds 305,089 shares in HP. "You do have to hope Hewlett-Packard Enterprise can become this growth engine and be more nimble."
Shares of Hewlett-Packard fell as much as 4 per cent in extended trading. The stock declined 1.4 per cent to $27.35 at the close in New York, leaving it down 32 per cent this year.
Consumer, Enterprise
Third-quarter net income fell 13 per cent to $854-million from $985-million a year earlier, the company said. Revenue declined 8.1 per cent to $25.3-billion, compared with analyst projections for $25.4-billion, according to data compiled by Bloomberg.
For HP Inc., if there are tremors in the PC business, only the printer business will be able to offset it. Similarly, in Hewlett-Packard Enterprise, weak demand for corporate equipment will have to be offset by the troubled services division, instead of the more reliable PC division.
"HP Inc. is going to be more of a cash flow and dividend story and HP Enterprise is going to be more of a growth story," said Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co., who has a buy rating on the stock. "What we're really waiting for is the allocation of the capital structure."
Last month, Hewlett-Packard disclosed that Hewlett Packard Enterprise will have around $16-billion in debt and $10-billion in cash, adding that this is subject to change. Two quarters ago, the company reduced its free cash flow forecast to $3.5-billion to $4-billion, from $6.5 to $7-billion.
Post-Split Challenges
Split-aside, Hewlett-Packard has numerous challenges. Three of the company's four main businesses – data center equipment, services, personal computers and printers – are facing major shifts in customer behavior. Cloud computing and mobile devices are letting corporations use far less enterprise technology than before, while consumers are spending their money on smartphones first and PCs second.
"HP faces intense competitors of considerable scale in each of its major markets," Amit Daryanani, an analyst at RBC Capital Markets LLC, wrote in a note.
HP is due to meet with analysts next month, where it is expected to give more financial details on the post-split companies.