) posted its first quarter earnings for fiscal year 2014 on
February 2oth. The company delivered better than expected results,
buoyed by resurgence in PC sales. Not only were revenues ahead of
the consensus at $28.15 billion, the company delivered 10%
year-over-year growth in non-GAAP diluted earnings per share to
$.90, which was 0.4 cents higher than the upper-end of the
guidance. However, revenues continued to reflect the challenging
economic environment across some of its business verticals. While
services revenues declined by 7% year over year to $5.95 billion,
the software division revenues declined by 4% to $916 billion.
However, personal systems and enterprise group revenues, buoyed by
share gains across the hardware segments, grew by 4% and 1%,
See our full analysis on HP
Outlook for Q2 and 2014
For Q2 FY14, HP estimates non-GAAP diluted net EPS in the range
of $0.85 to $0.89 and GAAP diluted net EPS in the range of $0.62 to
$0.66. For fiscal 2014, HP estimates non-GAAP diluted net EPS
between $3.60 and $3.75 and GAAP diluted net EPS between $2.85 and
$3.00. Fiscal 2014 non-GAAP diluted net EPS estimates exclude
after-tax costs of approximately $0.75 per share, related primarily
to the amortization of intangible assets and restructuring
Commercial Sales Spur PC Division
HP's PC and Workstation division is the fourth largest division,
contributing nearly 30% to its revenue and 10% of its estimated
value. Weak PC demand globally continued to plague computer
manufacturers during the quarter as the shipments declined.
However, HP bucked the downtrend and outperformed the market with
particular strength in its commercial PC business. While consumer
PC sales declined 3% year-over-year, commercial sales grew 8%.
Furthermore, the commercial notebooks grew by 4% over the prior
The company reported 6% growth in total units shipped during the
quarter, buoyed by a 5% increase in notebook shipments. As a
result, the company reported 4% year-over-year growth in revenues
to $8.53 billion against the backdrop of a 7% decline in PC units
in the fourth calendar quarter. Additionally, operating profit
improved by 0.5% y-o-y to $279 million or 3.3% of revenue.
HP Service Revenues Suffer Due To Tepid Business
The services division makes up 30% of HP's estimated value. HP's
enterprise services division reported a 7% year-over-year decline
in revenue to $5.59 billion and softness in new signings for the
quarter. Within this segment, the infrastructure technology
outsourcing division reported a 9% year-over-year decline in
revenues to $3.5 billion, due to a contractual revenue run-off and
pricing pressures. Furthermore, its application and business
services revenues declined by 4% year over year to $2 billion,
primarily due to softness in the applications business.
Software Division Suffers Due To Low Demand For
The software division makes up 10% of HP's estimated value. The
company reported 12% decline in professional consulting services
and 6% decline in license revenues. As a result, its software
division revenues declined by 4% year-over-year to $916 million.
However, HP reported double-digit revenue growth in its cloud,
security and big data services. We believe that cloud services are
potentially the biggest new revenue source for HP in FY2014.
ISS Buoys Server and Storage Division
The server and storage division is HP's second largest business
division and makes up 20% of its value. HP's Industry Standard
) division reported 6% year-over-year growth in revenues to $3.17
billion. The primary driver for this growth was HP's Hyper Scale
Server group, which reported double-digit growth in shipments.
However, the company continued to experience decline in its
business critical systems division as revenues declined by 25% year
over year to $228 million.
The storage division revenues were flat at $834 million as its
converged storage offering reported 42% year-on-year growth,
offsetting the decline in traditional storage systems. Its mid-tier
3PAR storage unit continued to gain traction as well. As more
companies adopt Cloud storage, we expect 3PAR and
converged storage solution will drive revenue growth at its
Pricing Pressure Drags Printing and Ink Cartridge
The printer and ink cartridge division is HP's third largest
division and makes up ~20% of its value. The printer division
reported better-than-expected results as its revenues declined by
just 2% year-over-year to $5.8 billion in the quarter. The primary
reason for the decline was a contraction in average selling prices
across ink and laser hardware, led by the tough pricing
environment. However, a 5% year-over-year growth in the number of
units shipped helped offset the decline to some extent. While
consumer hardware unit sales grew by 4% year over year, commercial
hardware unit sales increased by 6% against the same metric.
We are in the process of updating our model. We presently have a
$23.41 price estimate for HP
, which is 28% below the current market price.
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