Quick Take
- HP will report Q1 2012 earnings on February 21
- Autonomy, EDS and restructuring efforts are likely to weigh
on its earnings
- The company expects Q1 2013 EPS to be in the range
of $0.68 to $0.71 and GAAP diluted EPS to be in the range
of $0.34 to $0.37
- The enterprise services business will be affected the most
and the company expects to have revenues lower by up to 13%
annually
Hewlett-Packard (
HPQ
) is due to release its Q1 2013 earnings on February 21, and the PC
giant's earnings will reflect the slowing PC market, its
restructuring and the effect of accounting allegations against its
British software unit, Autonomy. In Q4, 2012, the company reported
a net loss of $6.9 billion, mainly due to a $8.8 billion
impairment charge related to the Autonomy acquisition. The company
also provided a detailed turnaround strategy and 2013 outlook
where the company expects a marginal decline in revenue across all
segments in 2013, except in the software division. The enterprise
services business is expected to have revenues of up t0 13% lower
and significant margin pressures as well.
In an effort to stay competitive and release innovative
products, the company had planned to increase R&D expenses and
IT spending. It planned to simplify business processes and lower
its sales and marketing expenses as it rolled out a CRM service
across the organization by implementing Salesforce.com's products
and services. The company also plans to reduce its workforce by
27,000 that is expected to save $3-$3.5 billion annually. Our
valuation is contingent on how effective the turnaround is and the
growth potential of its new business lines, and we will be watching
these closely this quarter.
See our full analysis on HP
For the Q1 2013, HP estimates non-GAAP diluted EPS to be in the
range of $0.68 to $0.71 and GAAP diluted EPS to be in the
range of $0.34 to $0.37.
EDS, Autonomy Will Weigh On Software And Services
Business
As the company went through restructuring efforts, the
guidance provided by HP stated that revenues were expected to
decline across all divisions except in the software division. If
the allegations against Autonomy by HP turn out to be true, the
software business may suffer as the potential earnings from the
Autonomy acquisition would have been inflated and the actual
earnings potential may be much lower.
EDS, which was acquired to boost the services division,
suffered a downturn and was the primary reason for the
restructuring effort involving letting go of 27,000 employees. We
have updated our estimate to account for the write-downs, and
will further update our model pending the investigation into the
fraud allegations.
The Enterprise Services business will be affected the most and
HP expects to have revenues lower by up to 13% annually. We
currently have a
$16 Trefis price estimate for HP
, which is around the current market price.
Understand How
a Company's Products Impact its Stock Price at Trefis