By John Rogers
Hewlett-Packard Co said Friday that fourth-quarter revenues could fall short of some Wall Street expectations but maintained that earnings per share will likely still meet estimates as a result of cost-cutting moves. HP shares dipped $3.375 to close at $87.375 in the wake of the news, after trading as low as $86.50.
Chief executive Carly Fiorina told analysts on a conference call that revenue growth for the quarter would probably come in at the low end of the 10% to 13% range which the company had previously projected. Fiorina cited sales force issues and disruptions due to the earthquake in Taiwan as prime factors behind the pressure on revenue. Still, she said, the company had a decent shot at meeting fourth-quarter earnings estimates of $0.99.
Although Fiorina said PC and printer sales were generally solid, sales of the recently-introduced N-Class servers have been disappointing. She pinned the blame on weakness in the sales force and said that poor performers have already been removed. The Taiwan earthquake, meanwhile, could cause problems in the flow of PC components such as DRAM chips. But the situation is still fluid, Fiorina said, adding that it is still too early to determine the extent of the quake’s impact on the quarter.
HP may not be the sole hardware manufacturer to be negatively affected by the quake. Analyst Michael Kwatinetz at Credit Suisse First Boston said Dell Computer Corp will likely be impacted, with the resulting component shortages limiting any upside to that company’s third-quarter results. The industry appears to have lost about 10 days of supply of certain components including video graphic accelerator cards and associated chipsets as a result of the Taiwan earthquake, Kwatinetz said. While any component shortage appears temporary, we believe the timing of Dell’s (and HP’s) quarter creates perhaps a 20% risk of a revenue shortfall.
HP’s stock has lost about 15% of its value in the two weeks since the earthquake hit and analysts at Merrill Lynch think the weakness in the shares may have encouraged Fiorina to give the business update in an attempt to reassure investors. Merrill analyst Steven Milunovich trimmed his fourth-quarter earnings estimate to $0.78 from $0.80. He left his fiscal 2000 estimate unchanged, however, at $3.40. Carly has a lot on her plate, but appears to be making positive long-term changes, Milunovich said.
Milunovich also noted that gross margin for the quarter will likely be about 50 basis points higher than expected at 29.2% due to continued favorable pricing in PCs and strong demand for high- margin printer supplies. The analyst estimates that HP will incur about $160m in fourth-quarter charges related to the spin-off of the Agilent testing and measurement business.
Also on Friday, Fiorina announced several changes in the ranks of senior executives. Ann Livermore, president of HP’s enterprise computing unit, will now take charge of the company’s e-services group, which she helped to establish. Livermore will also oversee the HP’s top 100 accounts and its professional and financial services operations. Meanwhile, Antonio Perez has been appointed head of the digital imaging group and Duane Zitzner will run the servers and software business. Carolyn Ticknor will oversee the printer business. á
