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.
"Today we're delivering a tough outlook. Definitely the most difficult one for me as CFO," said HP Chief Financial Officer Catherine Lesjak during a conference call with analysts Thursday.
The company is looking at moving away from PCs in order to focus on more profitable areas, such as security software and business analytics, HP CEO Leo Apotheker said during the same call. "HP is at a critical point in its existence and these changes are fundamental to the success that we all want," he said.
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, 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."
HP will shut down its TouchPad business over the next few months, but still hopes to make money with the webOS software it acquired when it paid $1.2 billion for Palm last year. "We will be looking at all of the options," Apotheker said. "We will be looking at all possible business models from licensing to any other business model."
After looking at the Q3 numbers, HP decided it would continue to lose money selling the TouchPad, said Lesjak. "To make this investment a financial success would require significant investment over the next one to two years," she said. That was simply too risky for the company.
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
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.
The IDG News Service