Hewlett-Packard Misses Estimates as Consumers Curb Spending

Hewlett-Packard Co., the world’s largest computer maker, forecast profit and sales that missed analysts’ estimates after a slump in consumer spending throttled growth. The shares tumbled 12 percent in late trading.

Excluding some costs, profit will be $1.21 a share at most in the second quarter, Palo Alto, California-based HP said today in a statement. Sales will be as much as $31.6 billion. That compares with predictions of $1.26 in profit and $32.6 billion in revenue, the average estimates in a Bloomberg survey.

Home-computer shoppers held off on purchases, even as corporate customers picked up spending. That eroded revenue during Leo Apotheker's inaugural quarter as chief executive officer. HP, which gets about a third of its sales from Europe, the Middle East and Africa, also was hurt by weakness there.

“The enterprise continues to hold up, but certainly not enough to offset the consumer-centric weakness,” said Amit Daryanani, an analyst at RBC Capital Markets in New York. “The revenue miss is a surprise to everyone.”

Investors are waiting for Apotheker, who took over Nov. 1, to present his strategy at an event for reporters and analysts in San Francisco on March 14. Former HP CEO Mark Hurd, who left in August, had cut costs to boost HP’s profitability and stock price during his five-year term.

Shares Plunge

HP fell $5.77 to $42.46 in extended trading. The shares, which had climbed 15 percent this year, closed at $48.23 at 4 p.m. in New York Stock Exchange composite trading.

Fiscal first-quarter net income rose to $2.6 billion, or $1.17 a share, from $2.25 billion, or 93 cents, a year earlier. Excluding some costs, profit was $1.36 a share. Sales rose to $32.3 billion in the period, which ended Jan. 31. Analysts in the Bloomberg survey were projecting profit of $1.29 and sales of $33 billion on average.

On the positive side, HP is expanding operating margins in its personal systems group, Daryanani said.

“It doesn’t look like they are using pricing as a lever to drive revenues up, which is a good thing,” he said. Daryanani has an “outperform” rating on HP shares and doesn’t own them.

To put HP on a new course, Apotheker and Chairman Ray Lane have shuffled HP’s board and are relying on acquisitions to expand in software. They’re also aiming to strengthen HP’s hand in the burgeoning markets for smartphones and tablet computers.

‘Isolated Areas’

“We have isolated areas we need to improve,” Apotheker said during a conference call with analysts today. Sales of PCs to consumers declined 12 percent in the first quarter, HP said, and total personal systems group revenue fell 1 percent to $10.5 billion. Services revenue dropped 2 percent to $8.61 billion.

Businesses continue to replace aging PCs with newer models, Apotheker said.

“This market still has some legs,” he said. Market research firm Gartner Inc. forecasts that worldwide PC shipments will increase almost 16 percent this year to 409 million units.

On Jan. 20, HP replaced four board members and added a new director. The new selections include former EBay Inc. CEO Meg Whitman and former Alcatel-Lucent SA CEO Patricia Russo.

On the acquisition front, HP purchased business- intelligence software maker Vertica Feb. 14 for an undisclosed amount. That followed a decision to discontinue the company’s own data-analysis program, called NeoView. Vertica’s customers include Web companies Twitter Inc., Zynga Inc. and Groupon Inc., according to its website.

Details Needed?

HP needs to better explain its lower sales guidance, said Abhey Lamba, an ISI Group analyst in New York. HP stock could suffer until then, he said.

“They will probably remain in the penalty box until we get more clarity about what’s going on,” Lamba said in an interview. He has a “buy” rating on HP shares, which he doesn’t own personally.

Later this year, HP will introduce a TouchPad tablet computer based on the WebOS operating system, gained in last year’s $1.2 billion acquisition of Palm Inc. The company introduced new smartphones running the software on Feb. 9.

HP also is dealing with a flaw in new chips from Intel Corp., the main supplier of PC processors. Earlier this month, HP said it had stopped making computers with the chips and put a hold on shipping affected inventory.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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