"Since the merger, HP has been a price aggressor in its supply chain," said Merrill analyst Steven Milunovich. "Using supplier consolidation and e-bidding, the company has wrung out significant cost savings in the past year. Refusal of motherboard orders is one of the first signs these savings may moderate and that operating leverage from this source is beginning to max out." As for HP's crown jewel, its imaging business, Milunovich said: "There's clearly a lot to like in HP's printing business, but we worry margins may be nearing a peak and that the environment can't get much better from here."
Merrill Lynch on Tuesday cut its rating on Hewlett-Packard shares to "neutral," saying that the company's ability to whittle down the costs of its business could be waning. In a research report, the brokerage noted that two Taiwanese motherboard makers had refused to accept a low-price contract from HP.