Storage, servers bruise HP earnings

Earnings per share rise compared with a year ago, but company misses analysts' expectations by a long shot.

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By Margaret Kane
Staff Writer, CNET

Hewlett-Packard said Thursday that third-quarter results improved from a year ago but fell short of analysts' expectation.

The company reported third-quarter earnings of $586 million, or 19 cents a share, compared with earnings of $297 million, or 10 cents a share, in the year-ago quarter. Excluding writing off assets and other acquisition-related charges, the company reported earnings per share of 24 cents, compared with 23 cents a year ago. A consensus of analysts had been expecting 31 cents per share, excluding charges, according to First Call.

Problems in various business segments have hurt overall results, CEO Carly Fiorina said in a statement.

"Although we are satisfied with our performance in personal systems, imaging and printing, software and services, these solid results were overshadowed by unacceptable execution in enterprise servers and storage," she said. "We therefore are making immediate management changes. We are also accelerating our margin improvement plans in this business."

Fiorina pointed to problems with a new order-processing and supply-chain system in the United States, and to issues with channel management in Europe. Specifically, the company said that compensation, overly aggressive discounting and a centralized claims process had been problems overseas.

HP expects revenue for the fourth quarter to be between $21 billion and $21.5 billion, and earnings per share to be around 35 cents to 39 cents. Those earnings figures include a charge of around 5 cents per share to write off various assets. Analysts were expecting the company to report earnings of 43 cents per share, including the charge.

The company's enterprise server and storage segment reported total revenue of $3.4 billion, down 5 percent from a year ago. The segment posted a quarterly operating loss of $208 million, compared with a loss of $20 million in the previous year.

Products that declined the most in the server business were Alpha servers, where revenue fell 32 percent compared with a year ago, and NonStop servers, where revenue declined 25 percent. Unix server revenue rose 8 percent.

Total storage revenue was $709 million, off 15 percent from a year ago and "significantly below plan," HP said. Online storage fell 23 percent, while "nearline" storage, which includes the tape library business, fell 16 percent year over year.

Enterprise servers and storage are part of the company's technology solutions group, which also includes software and services and was in May. That overall group posted revenue of $7 billion, up 4 percent from a year ago, but operating profit fell dramatically, from $209 million in the year-ago quarter to $56 million.

The services segment reported revenue of $3.5 billion, up 12 percent from a year ago, due largely to the company's managed services business.

The personal systems group, which includes PC sales, saw revenue rise 19 percent to $5.9 billion, with sales up 26 percent and sales up 12 percent.

The imaging and printing division reported revenue of $5.6 billion, up 8 percent from a year ago, and operating profit of $837 million, a third-quarter record. HP shipped almost 10 million printers during the quarter. Digital-imaging revenue rose 11 percent, with digital camera shipments offsetting a decline in the scanner market.

HP had been scheduled to report results next week.

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