So dim is the outlook for traditional desktop PCs these days that even a slight improvement in dismal earnings expectations would likely send Hewlett-Packard Co.’s shares on a tear.
HP reports its fourth-quarter financial results on Tuesday after markets close. According to Thomson Reuters, HP is expected to report earnings of $1 (U.S.) a share. That would be roughly a 14-per-cent drop from the same quarter last year.
It has been a tough few quarters for the technology giant, as earnings continue to fall and revenue from virtually every one of the company’s business divisions is either down or unchanged from a year prior.
Yet HP’s share price has done very well this year, having started 2013 at about $15 and currently hovering at $25. That’s at least in part because, as bad as the company’s earnings have been, investors and analysts consistently expected even worse.
Since taking over the top spot in 2011, CEO Meg Whitman has worked to cut costs and realign priorities at the struggling PC maker. However, even as the company explores new business opportunities in servers, security and similar enterprise-focused areas, Ms. Whitman has made it clear that revenue declines may continue into 2014, before HP makes a full turnaround.
The company’s core challenge, as has been the case for years, is the dwindling personal computer market. Once HP’s bread and butter, traditional desktop sales have seen the steepest decline in the technology’s history this year, as consumers opt for tablets and smartphones instead.
Like rivals Dell Inc. and Chinese computer-maker Lenovo Group Ltd., HP has sought new revenue sources as the core business fades. But unlike Lenovo, most of HP’s forays into the world of mobile computing have fallen flat. A tablet computer based on technology from Palm, an HP acquisition, was quickly discontinued after dismal sales. And with the vast majority of handset industry profits already secured by Apple Inc. and Samsung Electronics Co. Ltd., HP has not tried to enter the smartphone market with its own device.
Instead, the company is pinning its hopes on new and growing business markets – chiefly, cloud computing and data analytics. Investors will be watching to see if gains in those areas do anything to offset declining PC sales. Even a little bit of good news on that front might be enough to continue HP’s run of beating the street’s lowered expectations.