HP beats estimates but reports weak consumer PC sales

Hewlett-Packard reported weak consumer PC sales today while its enterprise computer business is going strong.

The world’s biggest computer maker reported revenues of $31.6 billion, up 3 percent from a year ago, and non-GAAP earnings of $1.24 a share, up 14 percent from $1.09 a share a year ago, for the second fiscal quarter ended April 30.

On a non-GAAP basis, HP reported earnings per share of $1.24 and sales of $31.6 billion. Analysts were expecting earnings of $1.21 a share on revenues of $31.53 billion, according to Thomson Reuters.

Leo Apotheker (pictured), who took over as chief executive in October after former boss Mark Hurd was fired in an ethics scandal, said, “The steepness of our Q2 decline (in consumer PC sales) is greater than we anticipated.”

HP reported earnings a day early because a media leak led to the publication of an internal memo from Apotheker that warned of weak performance in the current quarter and urged HP managers to watch their spending. Today, in a conference call, Apotheker said that HP delivered a strong quarter and, despite the memo, most of HP’s businesses are going strong. The memo said that HP is watching its head count, but Apotheker said that does not mean there will be mass layoffs.

He said HP saw uneven consumer performance across its product categories during the quarter and continued softness in consumer PCs across all geographies. That makes you wonder if strong sales of iPads and other tablets are hurting HP. HP’s personal systems group sales fell 5 percent, while consumer PC sales fell 23 percent.

But HP’s commercial PC sales business grew 13 percent. The overall enterprise server, storage and networking business grew 15 percent. HP said it is gaining share in the networking business, with its routing and switching business growing at double digit rates. That’s one reason that rival Cisco has seen its own networking business weaken. HP’s services business was up 2 percent in the quarter.

Apotheker said HP has done a great deal of work in consumer PCs and services since February, but the consumer PC market “has continued to be challenging industry wide.” He said HP is excited about WebOS (which it bought with Palm) and its upcoming consumer tablet launch.

Apotheker said the company is accelerating its efforts to align its services business model to its long-term strategy and will combine services with the enterprise servers, storage and networking business. HP is searching for an executive vice president to do that. In the interim, HP’s longtime services executive Ann Livermore will lead that charge. Apotheker said HP is doing some things in services it should have addressed a long time ago.

“We want to go up the value chain” in services, Apotheker said. “We will need to accelerate our investments in the business.”

For the current third fiscal quarter, which ends at the close of July, HP said it was revising its estimate because of near-term impact from the Japan earthquake, the continued softness of consumer PC sales, and reduced profit expectations for services. HP expects revenue of $31.1 billion to $31.3 billion and non-GAAP earnings per share of $1.08. The Japan quake has forced HP to ship more equipment via air freight, resulting in an overall impact of $700 million in lost sales.

For the full fiscal year, HP expects revenue of $129 billion to $130 billion and non-GAAP earnings per share of $5.00. HP’s bright spot was software, which grew 17 percent.

“We are confident we will continue to see good performance in software,” Apotheker said.

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