Hewlett-Packard (HPQ) Forecast Goes Beyond PCs And Printers

Print Email

The market was disappointed by Hewlett-Packard’s (HPQ) forecast for the next quarter. The technology company’s results for the past quarter were in line with Wall St. estimates.

Analysts look to H-P as a proxy for the sales of computer hardware such as printers, PCs, and servers. But, the company is in many other businesses and they are operations that have high margins that fuel the firm’s earnings. Shareholders should be more concerned with the forecasts for those divisions more than the immediate future of PC sales.

H-P was a force in the IT services sector long before it bought EDS. The acquisition makes the business of advising large companies and governments about how to best use technology a very significant part of H-P”s sales. If enterprises are cutting back on their use of these services, H-P’s ability to create profitable revenue will be compromised for the rest of the year no matter what the company does to squeeze out what it views as excess costs.

H-P faces a second problem. It has a unit that finances purchases for its customers. As the recession deepens, the default rate of that credit  pool is very likely to deteriorate. H-P then faces the kind of write-offs, on a much smaller scale, that many banks face on consumer and small business debt.

Weak PC sales may be the least of H-P’s problems going forward.

Douglas A. McIntyre