HP: All eyes on the demand picture

HP: All eyes on the demand picture

Summary: Hewlett-Packard reports its fiscal first quarter earnings on Tuesday and all eyes will be on the company's outlook for demand.Among the key questions: What's the PC unit growth picture amid slowing consumer demand?

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Hewlett-Packard reports its fiscal first quarter earnings on Tuesday and all eyes will be on the company's outlook for demand.

Among the key questions: What's the PC unit growth picture amid slowing consumer demand? Will printers be weaker than expected? And will enterprise demand remain steady?

HP is expected to report pro forma earnings of 81 cents a share on revenue of $27.59 billion That's down from the seasonal strong fourth quarter where HP delivered revenue of $28.3 billion and pro forma earnings of 86 cents a share.

Here's a look at the key items:

PC demand. Given Best Buy's warning about January consumer demand it would be logical to assume that HP's PC sales may fall short of expectations. Credit Suisse is estimating PC unit growth of 25 percent, but notes that 22 percent growth is possible. The last three quarters have delivered PC unit growth of 30 percent or more. Balancing that potential slowdown, however, would be better component pricing. For instance, Citigroup notes that DRAM prices feel 40 percent to 45 percent and that decline should support profit margins in HP's PC group.

Server demand. HP is expected to show server unit growth of about 12 percent. Credit Suisse is expecting server revenue of $4.7 billion. Overall enterprise revenue--servers, software and services--is expected to remain solid.

What's the deal with printer sales? HP is obviously the big dog when it comes to printer market share, but it stands to reason that consumers could cut back here.

Overall, analysts haven't budged much with HP's earnings outlook. Bear Stearns analyst Andy Neff said in a research note that HP's outlook for the first quarter was already conservative so any slowdown may be baked in. The one wild card is whether HP doesn't raise its outlook for the second quarter. HP is expected to report earnings of 82 cents a share in its fiscal second quarter.

Given that Cisco, Best Buy and Ingram Micro have indicated that January was a rough month for demand it's hard to see HP being overly optimistic.

Topics: Hardware, Banking, Hewlett-Packard, Printers

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