HP Q4: Mixed bag expected as IT giants stumble

HP's fourth quarter results are going to have a few issues amid emerging markets weakness and a U.S. Federal spending pause.
Written by Larry Dignan, Contributor

Can Hewlett-Packard deliver an upside surprise in its fiscal fourth quarter results given that giants like Cisco and IBM have been stumbling of late?

That's the question analysts have been asking as HP sets up its final quarterly report of its fiscal year. The short answer is that HP isn't expected to deliver many surprises. At this point, HP meeting expectations would count as a big win.

Most analysts are expecting HP to deliver results in line with expectations. Wall Street is expecting HP to deliver fourth quarter non-GAAP earnings of $1 a share on revenue of $27.9 billion.

Giants struggle: Cisco's Q1 mixed: Revenue light, earnings top estimates | IBM's Q3 mixed, hardware business thumped

The moving parts for HP go like this:

The PC and printer unit may benefit from better demands for PCs with the Windows 8.1 launch. Meanwhile, corporate demand seems solid. The catch is that the U.S. government shutdown probably dinged results a bit.

Wells Fargo analyst Maynard Um said data points from CDW, Intel and Gartner and IDC stats look promising:

We remain comfortable with our PC sales estimates of 4.7% sequential growth in FQ4 given signs of some stabilization driven by corporate upgrades and notebook seasonality. The printing market is also seeing some stabilization.

Related: HP targets commercial PC growth in Lenovo dogfight

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Services are likely to struggle along with the enterprise business. Federal spending tailed off and HP's services business is a work in progress anyway. HP is a top contractor in the U.S. government so any pause in spending will hurt.

The enterprise business is likely to be a mixed bag too. The primary thing to look for from HP will be comments about hyperscale computing and Project Moonshot servers. Server demand was decent in the last quarter for HP on the x86 front, but high end Unix systems were thumped again. Storage will also be tricky and networking remains to be seen.

Deutsche Bank analyst Chris Whitmore noted that HP may have benefited from Dell's move to go private. The catch is that Dell as a private company can strategically use price as a weapon to hurt HP margins in the future.

Emerging markets are going to be tough. Emerging markets have hurt Cisco and IBM and there's no reason to think HP, which has been talking about problems in China for two quarters, will magically escape the fallout.

HP's outlook is expected to be in line with expectations too amid economic uncertainty. Simply put there are no quick fixes. Whitmore said:

Overall, we continue to believe all HPQ’s major businesses face structural decline and margin pressure (PCs, Server, Printing) and we see few drivers for acceleration/ top line recovery in 4Q13-14 timeframe. As a result, we do not see a quick fix for any of these issues and we anticipate ongoing revenue and profitability headwinds for HPQ to remain in the medium term.

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