‘New’ HP posts mixed results

Hewlett-Packard Co. watchers were unfazed last week by the company’s posting of a US$2 billion quarterly loss in what was its first financial report to include results from the recently acquired Compaq Computer Corp. Eyebrows were raised, however, by a slippage in revenue attributable in part to sluggish enterprise computing sales.

HP’s loss was largely the result of nonrecurring merger-related charges. Without those charges, the company would have turned a profit of US$420 million for its fiscal third quarter, ended July 31, versus a profit of US$320 million in the comparable quarter last year.

“The reported operating loss included what might be considered to be somewhat one-timish elements, including obsolescence charges for HP Netservers, which are earmarked for end of life,” says Richard Shu, managing director for brokerage firm SG Cowen Securities Inc.

Analysts say the after-charges profit was actually a sign that HP might be starting to realize some of the cost-cutting benefits it said would result from the merger during the takeover that lasted from last fall to this May. Operating expenses were down 10 per cent year over year, and HP says it is on track to achieve cost savings of US$2.5 billion by the end of next year.

But analysts were discouraged by the drop in revenue from US$18.6 billion in last year’s fiscal third quarter to US$16.5 billion in the most recent quarter. HP blames the decrease on the weak economy and cites particular weakness in its enterprise servers, storage and management software. Combined, HP and Compaq revenue fell 22 per cent in these areas from a year ago to US$3.8 billion, from US$4.8 billion. Price pressure in the RISC and Intel server markets, and in storage, took its toll on HP’s numbers, according to a research note issued by Steve Milunovich, a vice-president at Merrill Lynch & Co. Inc.

Gartner Inc. last week released a survey that showed overall server sales slipping, and HP and Compaq getting hit hard. HP’s server revenue fell 21.3 per cent and Compaq’s fell 21.8 per cent year over year, and the companies lost market share as well. IBM Corp. and Sun Microsystems Inc. gained share.