What to look for in HP's earnings report

Hewlett-Packard reports fiscal third-quarter results with analysts expecting another drop in revenue as the tech giant struggles with a weakening personal-computer market and stiff competition in the corporate tech arena.

Hewlett-Packard Co. will report fiscal third-quarter results after the market closes on Wednesday.


H-P HPQ, +0.77%  has struggled with a weakening personal-computer market, where it is a major player. The company also has faced stiffer competition in the corporate technology market, especially with the rise of cloud computing, which lets businesses tap computing power in a network instead of setting up their own data centers.

But the Palo Alto, Calif.-based technology company’s shares got a boost in May when it unveiled a plan to cut as many as 16,000 jobs.

Here's what investors can expect:

Earnings: H-P is expected to report a profit of 89 cents a share, compared with a profit of 86 cents a share for the year-earlier period, according to a consensus survey by FactSet Research.

Revenue: H-P is seen reporting sales of $27.03 billion, down slightly from $27.23 billion in the same quarter last year.

Stock reaction: H-P shares rallied in May when the company reported slightly higher profit and announced another round of job cuts. The stock has climbed nearly 9% this quarter, and was up more than 25% year-to-date.

Key points: H-P has been focusing more on the higher margin segments of corporate IT, including services and data-center gear, as it struggles to become competitive in cloud computing.

UBS analyst Steven Milunovich said reports from NetApp Inc. NTAP, -0.60% and Cisco Systems Inc. CSCO, +0.82% point to “some improvement” in U.S. corporate spending, which could be a good sign for H-P’s server and data-storage businesses. But he also told clients in a note: “We are a bit concerned about recent weakening in Europe, where H-P is overweight relative to competitors.”

PCs also remain a problem for H-P, given the company’s huge exposure in a market that’s widely considered to be in steady decline.

While Milunovich said that “operational improvements along with a bottoming in the PC cycle should bolster near-term earnings,” he added that “the long term is more questionable, given H-P’s high dependence on hardware and vulnerability to cloud shifts.”

Source: marketwatch.com