Chinese New Year beefs up HP inventory

As expected, Hewlett-Packard's inventory levels were a hot topic last night on the company's earnings conference call. What wasn't expected was the reason why inventory levels were higher.

As expected, Hewlett-Packard's inventory levels were a hot topic last night on the company's earnings conference call. What wasn't expected was the reason why inventory levels were higher.

It was assumed that a buildup of product to get ready for the Vista launch was the culprit. Instead, Chinese New Year had a big effect.

HP executives said they were comfortable with inventory levels even though they were above historical norms. The company said inventory at the end of the first quarter was $8.4 billion, up $630 million over the fourth quarter and $1.6 billion from a year ago. HP had 39 days of inventory, up from 35 days a year ago.

Catherine Lesjak, chief financial officer for HP, said on the earnings conference call that "while we appropriately make inventory trade-offs, including some strategic buys to take advantage of deals and thereby reduce our overall bill of material costs, we need to do a better job in inventory management."

When asked for more detail, Lesjak said HP's inventory was up across all products and then noted Chinese New Year had an impact. She said:

"Some of the increases were due to what we discussed last quarter related to putting more inventory on boats from China in order to get cost of sales reductions, and so we definitely saw some increase in PSG as a result of that. We also had some increase in PSG for Chinese New Year, and while some of you might smile at that, the reality is we source a lot of product from China and when they go on vacation for Chinese New Year, we did not want to be without product, so we do have some inventory build as a result of that."

CEO Mark Hurd then chimed in on the inventory issue reassuring analysts that HP was "all over this thing."

"We feel pretty good about the freshness of the inventory," said Hurd. "You get the Chinese New Year effect, which I understand the smile point that Cathy made, but at the same time, we wanted to make sure we had inventory as we went into the coming quarter."