HP Printer Business Facing Challenges

The printer business which has long underpinned Hewlett-Packard's finances is facing structural problems that threaten its position as the company's cash cow, Meg Whitman, chief executive, has warned.

Ms Whitman's comments, which included a warning that the US computer maker faces deep challenges in all its main businesses, came on Wednesday as HP reported a 7 per cent slump in sales in its latest quarter, reflecting lost ground across a broad range of technology markets.

"The first thing we have to do is stop the revenue declines," Ms Whitman said, though she warned that it could take years for HP to recover from years of under-investment that had damaged its competitiveness. "These turnrounds are not done in less than two years, and often they take three or four or five years."

HP's shares, which have underperformed its main rivals this year, slipped by more than 1 per cent in after-market trading as it revealed the latest declines in its business. Lower sales of consumer PCs and printers ate into revenues in the latest quarter, weighing more heavily on the struggling US technology group than Wall Street had expected.

Significant declines in profit margins in its services and imaging and printing divisions compared with a year before also pushed down profits, leaving HP with a 44 per cent decline in net income for the period, to $1.5bn.

The hard-disk drive shortages caused by flooding in Thailand proved more damaging to HP's business than to some rivals, including Dell, which had reported earnings the day before. Ms Whitman said that HP had tried to respond to the supply shortages by focusing production on its most profitable computer hardware but had been unable to make all the adjustments it wanted, pointing to what she described as deeper weaknesses in its global supply chain.

Behind the latest declines lay a 25 per cent drop in consumer PC sales and 15 per cent fall in consumer printers. Overall, the personal systems division, which comprises PCs, suffered a 15 per cent decline in sales to $8.9bn, while imaging and printing division sales dropped by 7 per cent to $6.3bn and enterprise systems fell by 10 per cent to $5bn.

Ms Whitman had already set low expectations as HP sought to deal with weak demand from consumers and government customers and a decline in sales of its most profitable business computers, while also pursuing a turnround of the services division that now accounts for nearly 30 per cent of its revenues.

Revenues for the three months to the end of January fell by 7 per cent to $30bn, while pro forma earnings per share "the basis on which Wall Street assesses the company – dropped by 32 per cent, to 92 cents. Analysts had been expecting revenues of 30.7bn, with earnings per share of 87 cents.

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