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HP lowers financial guidance with webOS shutdown

Robert McMillan | Aug. 18, 2011
HP's stock drops on news it will discontinue webOS and look to spin off its PC group.

After pulling the plug on its webOS phones and tablet computers Thursday, Hewlett-Packard said it expected to be less profitable than expected during its current fiscal quarter, which ends Oct. 31.

The company announced earnings Thursday that were on the low side of analyst expectations, numbers that were largely overshadowed by the company's dramatic decision to pull out of the tablet market altogether and to consider options for either spinning out its PC group or putting it up for sale.

Going forward, HP said that fourth-quarter revenue will be between US$32.1 billion and $32.5 billion, and that earnings per share will be in the $1.12 to $1.16 range, excluding charges from the webOS shutdown. The market had been expecting earnings of $1.31 on sales of $34 billion, according to a survey of analysts by Thomson Reuters.

Consumer sales at the group's PC division have been imploding, down 17 percent year over year, the company said. Although the company posted 9 percent growth in PC sales to businesses, overall revenue was down 3 percent for the division, called the Personal Systems Group. If HP were to sell off its PC group, it would be following in the footsteps of IBM, which decided seven years ago that razor-thin PC margins weren't worth pursuing.

In an age of mobile computing, increasingly dominated by companies such as Apple and Google, HP is losing ground. Collectively, consumer sales in the group's PC and printing groups were down 15 percent year over year, HP said.

On the plus side, HP's enterprise hardware group saw revenue grow 7 percent, year over year, totalling $5.4 billion. The company's much smaller software group saw revenue rise 20 percent during the same period, to $780 million.

The shuttering of webOS will cost between $0.61 and $0.68 per share, HP said.

On Tuesday, the Wall Street Journal reported that HP had sold a miserable 10 percent of the webOS-based TouchPad tablets it had shipped to U.S. retailer Best Buy. "The devices have not met internal milestones and financial targets," HP said in a statement. "HP will continue to explore options to optimize the value of webOS software going forward."

Earnings for HP's third quarter, ended July 31, were $1.10, on revenue of $31.2 billion, up from $30.7 billion in the third quarter of 2010. Both of those numbers were in line with market expectations. Net earnings were $1.9 billion, up 9 percent from the year-ago figure of $1.8 billion.

HP also confirmed that it will buy analytics software vendor Autonomy for $42.11 per share, a cash deal that some reports have valued at around $10 billion.

HP released some financial information earlier than expected Thursday after media reports of the PC sell-off and Autonomy acquisition surfaced.

Traders didn't like the news. HP's stock (HPQ) closed the day down 6 percent, trading at $29.14 late Thursday on a down day in the markets. The Dow Jones Industrial Average dropped 3.7 percent Thursday.

 

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