HP misses the mark

Revenue for the systems giant jumps 15 percent compared to last year, but high costs and delays in medical supply shipments drag down earnings.

2 min read
Falling short of Wall Street expectations, Hewlett-Packard (HWP) today reported a moderate fiscal third-quarter net income because of slow medical equipment sales and higher costs.

The second-largest computer company reported HP at a glance net income of $617 million, or 58 cents a share, compared with $425 million, or 40 cents, in the same quarter a year ago. Revenue for the quarter ended July 31 rose 15 percent to $10.5 billion from $9.11 billion a year earlier.

Wall Street expected HP, based in Palo Alto, California, to earn 68 cents a share.

In the aftermath of today's news, HP shares fell to 63-3/8 at the market's close, down 2-3/4 over Friday.

As previously reported by CNET's NEWS.COM on August 15, strong sales, especially in the corporate market, were expected to propel HP to improved earnings for the quarter that ended in July and set the stage for continued growth.

Last year, earnings dipped 26 percent because of losses in certain business divisions. And last quarter, earnings came in below expectations.

"Our results this quarter were mixed," said Lewis Platt, HP chairman and chief executive. "On the positive side, we're pleased with our strong comeback in order and revenue, driven by excellent acceptance of new products and services."

Strong sales in computer systems, printer supplies, and semiconductor test equipment were offset by shipment delays in medical equipment and high costs, Platt said.

Orders for the quarter were $10.4 billion, a 19 percent increase over last year's third quarter. Orders in the United States grew 25 percent compared to last year at this time; they were $4.9 billion. And orders from outside the United States increased 15 percent at $5.5 billion.

Company executives said that a number of factors affected high operating expenses compared with the second quarter. The most significant were costs associated with several recent acquisitions and higher expenses for Stock Appreciation Rights (SARs), which are related to stock options.

"We had expected to see some increases in cost-of-sales and operating expenses, given our many actions to stimulate growth," said Robert Wayman, HP executive vice president and chief financial officer, in a statement. "However, lower revenue in our medical business, acquisition effects, and higher-than-usual SAR expenses had a greater impact than we expected."

Several key product introductions are in the works, Platt said. HP will roll out new services, but also has to bring its expenses into line, he said.

Reuters contributed to this report.