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Consumer Electronics

Analyzing Hewlett-Packard (HPQ)

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By Douglas A. McIntyre Published
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By Yaser Anwar, CSC of Equity Investment Ideas

  • HPQ posted results above expectation with revenues of $25.1 billion and EPS of $0.65 vs Street estimates of $24.3 billion and $0.62. HP’s PC growth far exceeded IDC’s estimates of 7.3% for the December Q and overall 9.5% for last year, with market share rising by 140 bps.
  • From an earnings view, HPQ was in full throttle, beating Street estimates in all divisions. PC revenues were a highlight, with 19% YoY and 17% YoY revenue growth despite worries of a slowdown ahead of the Vista launch.
  • Region wise, both Europe, up 14% YoY, and Asia, up 15% YoY, witnessed revenue growth accelerating. US revenue growth came in at 4% YoY, thanks to strength in consumer revenues.
  • HPQ’s upside came from strength in PSG and TSG divisions revenues and operating margins. IPG revenue was up 7% YoY, with operating margins up 15% QoQ. Improved margins were driven by supplies growth acceleration to 11%. In PSG, HPQ’s revenue growth accelerated to 17% YoY vs 10% last Q, driven by strong PC unit growth, especially in notebooks which was up 57% YoY.

  • HPQ guided above consensus for 2nd Q, with revenue expected to be $24.5 billion and EPS expected to be $0.63-$0.64 vs Street estimates of $24 billion and $0.61. Keep in mind, HPQ’s guidance reflects weaker than normal seasonal trends on a quarterly basis, thanks to increase in PC channel inventory levels.
  • Investors should consider the following risks: HPQ’s owned inventories increased faster than revenues and is a concern if demand decelerates. Cash flow from operations hit negative territory for the first time in over five years (read: Mercury acquisition) with FcF, -$740 million, fell this Q, and the cash conversion cycle increased to 32 days vs. 28 days in the last Q. Lastly, there is always the risk of slower than expected IT spending by the corporate departments.
  • Furthermore, in 06, cost cutting led to significant upside in EPS and revenue growth has extended strong results, but with diminishing benefits from cost cuts and tougher revenue comps ahead, continued upside results may be tough to achieve.
  • HPQ’s showed low revenue growth in: storage, business critical services divisions. However, management will be making the essential investments over the next 6-12 months, which should re-accelerate these segments. Higher inventory levels, as eluded to before, are worth monitoring but explained by strategic actions and product cycles.
  • For a list of institutional shareholders of HPQ, click here

    • http://www.equityinvestmentideas.blogspot.com/

    Photo of Douglas A. McIntyre
    About the Author Douglas A. McIntyre →

    Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

    McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

    His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

    A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

    TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

    McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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