A lot of tech companies are indicating an end to the downturn in their gadget-heavy sector right now. But that doesn't mean that the turnaround consensus is unanimous.
Hewlett-Packard (NYSE: HPQ ) is usually about as steady as they come in the highly volatile world of high tech. But this quarter, this giant stumbled badly while rivals like Oracle (Nasdaq: ORCL ) and IBM (NYSE: IBM ) presented their usual fine quarters.
On the surface, it ain't all that bad. But it takes just a little bit of thinking to get HP's big, bad picture.
GAAP earnings fell $0.10 per share to $0.70 per share, year over year. Sales dropped a minuscule 3% to $27.4 billion, and it was actually a 3% annual gain if you take out the effects of currency exchange rate fluctuations. Not bad for a recession report, eh?
But then you forget that HP spent $13.9 billion to acquire IT services mogul EDS last August. Without accounting for the revenue effect of EDS, those 3% movements are like comparing apples to bananas.
In the year-ago quarter, EDS pulled in $5.4 billion in sales of its own. Yes, HP's services segment doubled revenue from $4.2 billion last year to $8.6 billion today -- but that's still a billion less than simply tacking on a stagnant EDS unit. Overall, HP's pie is shrinking, even in the service department which has become the apple of CEO Mark Hurd's eye.
Elsewhere, things look grim. Enterprise storage and servers sales fell 28% to $3.5 billion. Notebook sales were up 14% but desktops down 13% -- in unit volumes. Average selling prices must be way down then, because sales dropped 19% overall in the personal systems group. (That slump doesn't bode well for Dell's (Nasdaq: DELL ) report next week, either.)
A 23% sales drop to $5.9 billion in the printing group completes the picture. HP only looks good in a certain slant of light, through rose-colored goggles. If you like to invest in tech giants, I believe you could do much better with proven performers like Apple (Nasdaq: AAPL ) , IBM, or Google (Nasdaq: GOOG ) these days than with a struggling outfit like HP.
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