HP's Q1: PCs, enterprise struggles to continue

With Cisco, IBM, NetApp and EMC seeing anemic infrastructure spending it's highly unlikely that HP can fly through the turbulence unscathed.

Hewlett-Packard's key businesses in terms of revenue never seem to be firing at the same time. In the first quarter, HP's printing and services units are expected to show improvement or at least hurdle low expectations, but PCs and the enterprise divisions are likely to struggle.

The IT giant on Thursday is expected to report fiscal first quarter earnings of 84 cents a share on revenue of $27.2 billion.


According to analysts, HP's PC business is expected to show weakness as the company ceded market share to Lenovo and saw its sales decline. The PC business alone could mean that HP will struggle to hit its revenue targets.

Those sales targets are likely to be even harder to hit as HP's enterprise division is expected to struggle. HP is a key player in the so-called x86 server market and had a good quarter per Gartner stats. Toss in hyperscale server wins and HP may look ok on the enterprise front.

However, Credit Suisse analyst Kulbinder Garcha noted that "Cisco, IBM, EMC and NetApp results point to anemic spending across infrastructure and services as macroeconomics and the transition to cloud slow spending."

What are the chances all of those enterprise tech giants saw weakness and HP didn't? Slim and none.

Oddly enough, analysts seem to be upbeat about HP's services unit, which has been an issue for years. Services operating income is expected to increase nicely in fiscal 2014. In addition, HP's printer unit should hold operating margins of 16.5 percent as revenue declines a 1 percent to 2 percent a year.

BMO analyst Keith Bachman noted that the printing division has low expectations to hurdle. It's also worth noting that HP will make a 3D printer splash at some point in 2014. And all the services division has to do is raise margins to the level of its competition and profits will increase.

What's worrisome about analysts' HP turnaround hopes is that a lot rides on the services business, which has had a spotty track record. Enterprise services revenue is expected to fall about 5 percent in fiscal 2014.