HP reports $8.9bn Q3 loss on writedowns, weak sales, lowers full-year forecast

The loss is due largely to previously announced writedowns, but the company's PC and server business was also weak

Hewlett-Packard has announced a $US8.9 billion loss for its third quarter ended July 31 due to writedowns and weak hardware sales and also said full-year results would be at the low end of its previous guidance.

Earlier this month, HP said it would take a $US8 billion "impairment of goodwill" writedown against its services division. "Goodwill" refers to less tangible assets, such as brand strength, that are considered when figuring out a company's total value. HP's $US13.9 billion acquisition of services provider EDS has been roundly criticized as too costly.

HP also said earlier this month that it would have a bigger than expected charge in the third quarter in connection with a workforce reduction plan announced earlier this year.

Revenue for the third quarter fell 5 per cent year over year to $US29.7 billion.

Without the writedowns and other one-time costs, third-quarter profits would have been $US1.97 billion, down 9 per cent year-over year.

Excluding one-time costs, full-year earnings per share will be $US4.05 to $US4.07. In May, HP said it expected full-year earnings of $US4.05 to $US4.10 per share.

Personal Systems Group revenue in the quarter fell 10 per cent, with a 12 per cent drop in consumer spending and a 9 per cent fall in commercial purchases. Within the segment, desktop PC sales fell 6 per cent and notebooks dropped 12 per cent.

Imaging and Printing Group sales were down 3 per cent. While commercial sales rose 4 per cent, consumer purchases dropped 13 per cent, according to HP.

Services revenue fell 3 per cent.

Enterprise servers, networking and storage sales dropped 4 per cent, with the biggest hit taken by Business Critical Systems, where revenue fell 16 per cent. Networking sales rose 6 per cent.

Software sales rose 18 per cent, driven in part by last year's acquisition of Autonomy. However, new license growth, a key indicator of health in a software business and the mood of customers for starting new projects, rose only 2 per cent. Software-related support revenue was up 16 per cent and software services rose 65 percent.

HP rival Dell also released financial results this week, reporting that second-quarter profit had fallen 18 per cent due to lower sales of desktop PCs, laptops and other mobile products.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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Chris Kanaracus

IDG News Service
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