HP Reports Modest Quarterly Profit Gains

Enterprise divisions carry the company, but sales of competitors' tablets and other handheld PCs are beginning to cut deeply into the company's laptop and desktop PC businesses.

Hewlett-Packard reported modest gains May 17 for its second fiscal quarter ended April 30, led by the continuing success of its enterprise business divisions.

However, a bigger issue that new CEO Leo Apotheker faces is that the numbers indicate sales of popular new tablet and phone devices from competitors such as Apple and Samsung are beginning to cut noticeably into the IT giant's consumer PC business.

Overall, the Palo Alto, Calif.-based company reported its net revenue of $31.6 billion was up 3 percent from a year ago but increased a mere 1 percent when adjusted for the effects of currency.

GAAP (generally accepted accounting policies) diluted earnings per share was $1.05, up 15 percent from $0.91 in the prior-year period, the company said.

"Results were largely driven by performance in the commercial sector as businesses continued to spend on technology. HP experienced uneven consumer performance across its product categories during the quarter with continued softness in consumer PCs across all geographies," CFO Cathy Lesjack said in the report.

HP's consumer PC sales fell 23 percent in the quarter compared to a year ago, before Apple's iPad and numerous other tablets hit the marketplace. Analysts have projected worldwide sales of between 30 and 50 million iPads in 2011--not to mention all the other Android and Windows-based tablets now on the market.
HP's own consumer and business tablet, the TouchPad, is being readied for distribution within the next four to 8 weeks. And not a moment too soon for the world's largest IT company (by sales volume).

HP's enterprise server, storage and business PC units continue to do well, however. The company said its commercial PC sales increased 13 percent; in total, HP's personal systems group sales--meaning business and consumer PCs--declined 5 percent.

Apotheker, delivering his third quarterly report as CEO since he moved from SAP last November, said that overall HP delivered a "solid quarter."

"Our enterprise strategy, with services at its core, is focused on higher value-added solutions," Apotheker said in the report. "Today we are accelerating our efforts to align our services business model to our long-term strategy."

HP also lowered its earnings outlook for the rest of the year, saying it is expecting weaker sales of its consumer PCs.
The company said it also was adversely affected by the earthquake in northern Japan in that its supply chain was disrupted in several areas. HP's stock was down about 6 percent on May 17.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...