May 20, 2009
HP profits fall on flagging sales
Hewlett-Packard announced yesterday that its Q2 of 2009 continued a decline in sales and introduced a drop in profits. Even the company's vaunted printer business took a 23 percent hit in sales compared to the 2008 Q2.
In the Q2 report conference call with analysts, HP announced it will cut an extra 6,400 jobs. These cuts are in addition to the 24,600 jobs HP is eliminating as a result of its EDS acquisition. HP stock dropped 4 percent in today's trading, the first since the report was released.
Services, wrapped around support and the new EDS operations, offered HP its largest bright spot in profits. Services poured in an $8.5 billion quarter for sales, revenue which HP said came right out of the EDS acquisition. Toner and ink "consumable" sales were down in Q2 as well. Ink makes up about a third of HP's profits.
Enterprise Storage and Servers (ESS), the HP group where HP 3000 alternatives grow up and roll out, reported revenue of $3.5 billion, down 28 percent. Not even the Windows-friendly Industry Standard Servers could supply a bright spot; both ISS and the HP-UX Business Critical Systems posted 21 percent sales declines. The ESS blade revenue fell 12 percent as well. ESS operating profits fell by more than 60 percent over the prior-year period.
HP put its best face on the steep quarterly sales decline by touting cash flow, rather than sales or profits. "Disciplined focus on operational efficiencies and execution drove record cash flow,” said CEO Mark Hurd. "Our services business continued to deliver strong profitability with an increased deal pipeline and the EDS integration
tracking ahead of schedule."
Other upbeat news came from the geographic breakdown of sales. The Americas showed a 12 percent increase while the rest of the world's sales fell 10 percent or more. And that Printing and Imaging Group, while posting fewer sales, maintained its operating profit ($1.2 billion) versus last year's Q2.
The overall profitability picture for 2009's first half is not as bleak as the recent results. GAAP profits have fallen 5 percent from last year's Q2 numbers. But every HP business except Services and Finance posted weaker profits than last quarter. And the total earnings before taxes are down 17 percent for the first half of 2009 against last year's numbers.
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