HP outlook down, shares hit 9-yr low

  • Reuters, San Francisco
  • |
  • Updated: Oct 04, 2012 22:27 IST

Hewlett-Packard Co's shares plunged to a nine-year low on Wednesday after Chief Executive Meg Whitman warned of an unexpectedly steep earnings slide in 2013, with revenue set to fall in every business division except software.

Wall Street had hoped for quicker signs of progress on Whitman's turnaround plan, which centers on transforming the former industry powerhouse into an enterprise computing corporation that can take on IBM and Dell Inc.

Whitman, who took the helm of HP just over a year ago after a failed bid to become governor of California, told investors that the company's recovery would start to become visible only in fiscal 2014, when investments begin to pay off.

She blamed unprecedented executive turnover in past years for dragging out the Silicon Valley company's turnaround.

Analysts say HP is struggling to shore up its credibility on Wall Street while battling crumbling margins in an increasingly cut-throat PC arena, tapering-off of IT spending, and an internal organizational overhaul that involves thousands of layoffs.

"I was surprised that nothing new was really said in terms of strategy, and the problem here is there is lack of investor confidence in the current strategy," said Shaw Wu, an analyst with Sterne Agee.

Shares of HP, the largest US technology firm by sales, tumbled 13% on Wednesday in the biggest single-day decline since August 2011. Shares of some of HP's contract makers in Asia also fell on Thursday.

HP gave a very gloomy outlook for enterprise services, its business providing services to corporations and a key component of Whitman's rescue plan.

Revenue from that division will dive 11 to 13% in fiscal 2013 and be barely profitable, with operating margins of zero to 3%. This is in stark contrast to IBM, which raised its full-year earnings outlook, reflecting ability to manage costs, despite flat sales.

 

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