HP Keeps Spinning the Hardware Wheels

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

The latest results from Hewlett-Packard (NYSE: HPQ  ) make me think that ousted CEO Leo Apotheker was onto something when he wanted to shift out of hardware sales to more of a software focus. In the first quarter, all three hardware-focused divisions took diet pills while software and services fattened up.

Revenue fell 7% YOY, to a nice, round $30 billion, about $750 million below Wall Street's consensus estimates. Non-GAAP earnings of $0.92 per share shot past the Street's target at $0.87 per share, though far below the year-ago period's $1.36 per diluted share.

CEO Meg Whitman described the quarter as a success story. "We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP's technology leadership," she said.

Nevertheless, guidance for the next quarter was disappointing and I see red flags all over the place. I can understand if PC sales lost 15% of its sales YOY, given the onslaught of systems competition from Chinese and Taiwanese companies, not to mention how Apple (Nasdaq: AAPL  ) cannibalizes the PC industry with both Mac systems and iPad tablets. But HP's systems business actually dropped 12% from the previous quarter, going against everything we know about consumer behavior and holiday seasons.

And it gets worse. HP is launching lawsuits against Oracle (Nasdaq: ORCL  ) to defend its Itanium servers, but server sales fell 11% from last year anyhow. To put that swoon into context, IBM's (NYSE: IBM  ) comparable systems sales fell just 2% YOY in the latest report.

Moreover, HP brags about $1.2 billion in operating cash flows this quarter, but fails to explain what it means. This was less than the $1.5 billion in GAAP earnings, down from $3.1 billion a year ago, and mostly gone after spending $883 million on capital expenses. HP was left digging into cash reserves to fund its $1 billion in dividends and buybacks. Not a sustainable model, I'm afraid.

If you want to profit from the latest revolution in enterprise computing, HP looks like a terrible investment vehicle. In a special report, we'll show you the only stock you need to ride the Big Data boom. Hurry up and grab your free copy -- it won't be available much longer.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple and International Business Machines. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1788470, ~/Articles/ArticleHandler.aspx, 10/28/2016 5:46:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 4:03 PM
HPQ $14.09 Up +0.10 +0.71%
HP CAPS Rating: ***
AAPL $113.72 Down -0.76 -0.66%
Apple CAPS Rating: ****
IBM $152.61 Down -0.74 -0.48%
IBM CAPS Rating: ****
ORCL $38.17 Down -0.05 -0.13%
Oracle CAPS Rating: ****