HP's 3Q Profit Not Enough For Fiorina

Aggressive pricing campaigns and expensive product and strategy launches took their toll on Hewlett-Packard during the company's third quarter, ended July 31. HP on Tuesday reported a profit of $297 million, or 10 cents a share, on revenue of $17.34 billion--a dramatic turnaround from a year ago, when it reported a loss of $2.03 billion, or 67 cents a share, on revenue of $16.54 billion. But chairman and CEO Carly Fiorina expressed disappointment with the numbers during the company's earnings conference call. Even though the third quarter is typically a tough one for HP, "we should have done better," she said.

In addition to the normal third-quarter lull, HP was hurt by aggressive pricing against competitors in the areas of personal systems and enterprise systems. This isn't expected to change as HP continues to phase out proprietary Alpha technology in favor of Intel processors and other technology that has become industry standard. On a positive note, during the quarter, HP formally launched its Adaptive Enterprise and Darwin Reference Infrastructure Services strategies. Fiorina said both are "opening doors and closing deals."

HP's imaging and printing business had the biggest year-over-year increase in revenue, growing 10% to $5.24 billion. The company managed to keep its printer hardware inventory at four to six weeks, with a slightly greater inventory for printer supplies. Other businesses that grew were personal systems, up 5% to $4.97 billion, and services, also up 5% to $3.08 billion. HP's enterprise systems business was roughly flat year to year, with revenue of $3.71 billion.

Personal-systems growth was driven primarily by consumer PCs; revenue from commercial desktops was down 14%. Fiorina said HP has to do a better job of upselling and cross-selling PCs and peripherals. The company sold 54% of its commercial PCs in the United States through a direct model during the quarter and kept three to four weeks of inventory of its commercial PCs.

Fiorina expressed satisfaction with HP's services business, where managed services revenue was up 21%. "HP now has a seat at the table at all major outsourcing deals," she said.During the quarter, HP laid off nearly 2,000 employees from its enterprise-systems business, with most of these coming late in the quarter. The layoffs weren't done necessarily for fourth-quarter profitability but rather because of the market trend away from small and midrange Unix and toward Intel-based industry-standard servers, Fiorina said. Revenue from high-end Superdome servers increased a healthy 64% from a year ago.

HP expects each of its business lines to be profitable during its fourth quarter. The company estimates that revenue will grow in its fourth quarter to $18.8 billion to $19.1 billion, up 8% to 10% from the third quarter.