HP: Expect More PC Pressure

James Rogers

NEW YORK (TheStreet) - HP(:HPQ) reports its fourth-quarter results before market open on Tuesday amid limited expectations for the no. 1 PC maker.

Last week's third-quarter miss by rival Dell(:DELL), the latest in a string of underwhelming results this tech earnings season, has done little to inspire confidence in HP's fourth-quarter numbers.

Moody's analyst Richard Lane pointed to Dell's 19% year-over-year decline in PC revenue, noting that within PCs, notebook revenue fell 26% and desktop revenue fell 8%.

"The news bodes ill for Hewlett-Packard Company, which derives 30% of revenue and 15% of total operating profit from its personal computer segment," he wrote. "Going into 2013, we expect worldwide personal computer unit sales to decline between 2% and 5%."

Analysts surveyed by Thomson Reuters expect HP to report revenue of $30.43 billion and earnings of $1.14 a share, compared to revenue of $32.3 billion and earnings of $1.17 a share in the prior year's equivalent quarter.

These are tough times to be selling computers. Declining PC and printer sales weighed heavily on HP's third-quarter results in August. The company also lowered its guidance for fiscal 2012.

Recent comments from other tech bellwethers have done little to boost investor confidence in HP, which has seen its shares slip more than 48% this year.

"With Dell, Intel(:INTC) and Microsoft(:MSFT) giving disappointing comments on PC demand, investor expectations are fairly low," warned Sterne Agee analyst Shaw Wu, in a note.

Wu, who has a neutral rating on HP, anticipates mixed results from the tech giant on Tuesday. "From our supply chain work, we believe revenue will likely come in light, but EPS in line or better," he wrote, attributing the earnings number to HP's cost controls.

Wu's modeling $30.4 billion in revenue and earnings of $1.16 per share.

The analyst highlighted continued sluggish trends in PCs and printers, which will be somewhat offset by healthier trends in servers and services. Software, a key area of focus for HP recently, should also be positive, although this is still a relatively small part of the company's total sales.

HP, of course, is still in the throes of a major restructuring effort, as CEO Meg Whitman attempts to turn the company's fortunes around. Last month Whitman started to flesh out this plan, but warned that it will take at least another three years.

Speaking at a securities analyst meeting in New York, Whitman described fiscal 2012 as a "diagnosis and foundation" year, with fiscal 2013 a "fix and rebuild" year. "Recovery and expansion," "acceleration" and "industry-leading competition" will characterize the years 2014 through 2016.

Highlighting the scale of the challenge facing HP, however, the company expanded its previously-announced job cuts in September.

Topeka Capital Markets analyst Brian White expects HP to meet his revised fourth-quarter forecast of $30.43 billion in revenue and earnings of $1.14 a share. The analyst, however, has longer-term concerns about the tech giant.

"In our view, HP's restructuring initiative is a move in the right direction," he wrote, in a note. "However, we remain concerned with the Company's high exposure to Europe (EMEA at 36% in 3QFY12), competitiveness in the PC market (29% of 3QFY12), leveraged balance sheet and longer-term relevance in the enterprise IT market given the Company's current portfolio."

Whitman certainly has her work cut out. From intensifying competition with Apple(:AAPL) in PCs, and a rejuvenated Cisco(:CSCO) in servers and networking, HP's vast product portfolio necessitates an aggressive war on multiple fronts.

To aid this effort, the CEO has already discussed plans to streamline HP's bewildering array of products, reconnect with channel partners, consolidate marketing and improve internal IT systems.

HP shares climbed 3.5% to close at $13.30 on Monday, but dipped 0.08% in extended trading.

--Written by James Rogers in New York.

Follow @jamesjrogers

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