The tech company, Hewlett Packard (HPQ, Financial), is slated to declare its final quarter results on November 25, and analysts’ and investors have several opinions which are yet to be tested after the company releases its fourth-quarter earnings. Last month, HP announced the split into two companies – one concentrated on PCs and printers, the other on hardware, software and other services. This news created a lot of opinions among analysts on the company’s future strategies and growth. Let’s undermine the facts which are likely to be shared during tomorrow’s earnings call that would be webcast after the close of trading.
Looking into the past
The company has been able to beat analyst estimates in the past two quarters of the fiscal year. In Q3, the tech company’s revenue grew 1% year over year to $27.6 billion. The company also delivered $0.52 a share in GAAP diluted earnings per share, down 27% from the year-ago quarter.
While HP is currently facing several challenges in the IT services division, it’s recouping market share in the hardware segment that comprises PCs, desktops, tablets and printers through new product launches. Analysts are of the opinion that enterprise demand for HP services will continue to remain weak, and this might drag HP’s revenues across its services business division while the hardware segment will possibly boost the sales momentum.
The company’s guidance is firm
For the final quarter of the year, HP had estimated non-GAAP diluted net EPS to be in the range of $1.03 to $1.07 a share, and GAAP diluted net EPS in the range of $0.83 to $0.87 a share. For the full year, the company guidance stands between $2.75 and $2.79 a share as earnings on GAAP basis.
What analysts are saying
As the company is undergoing widespread restructuring, analysts are also not currently holding any high opinion on the company’s revival in terms of improved sales. However, they are hoping that the top line from the PC hardware division continues to grow at a brisk pace while other operating segments are expected to show a slowdown in the growth momentum.
For the HP Services and Software division, which account for collectively 32% of the company’s total value, the growth will likely be nominal. In the last quarter, HP had reported a decline in both services and software division sales as the macroenvironmental conditions were tepid. Since the challenging environment continues to rule over the sales chart for HP, analysts do not have a positive thought on the revenue that could be earned through this division. Instead, they believe that the decline in the current quarter would be profound than what has been witnessed in the past quarter.
Since HP’s server shipments are continuing to grow, the company expects to report improvement in shipment volumes for the quarter for the server and storage division. Analysts also agree with this company opinion as this division posted 9% year-over-year growth in the past quarter with revenue of $3.09 billion.
HP’s PC and workstation division accounts for around 30% of its overall revenue. Gartner states that the worldwide PC shipments experienced marginal decline in the third quarter of the fiscal year. But HP continues to generate revenue from this division through new launches it had undertaken in the past quarters as well.
HP leads in the market with respect to the printer segment, embarking on a market share of around 40%. As the company continues to target the high-end ink market and commercial hardware, HP stands at an advantage even in the coming quarter from high-end laser sales. And analysts also hold a similar outlook on this profitable segment.
Impact of new strategies yet to take shape
In the past quarter, HP’s cost-cutting initiatives and improvement in the PC segment drove the numbers. The company’s traction into Cloud, security and Big Data segments are expected to act as growth catalysts going forward. In fact, very recently the company unveiled the HP HelionNetwork, a Cloud-based portfolio of products and services that provides users a flexible network. Such a solution aids in improving the hybrid IT environment that in turn could act as a tailwind for the near-term financial performance boosting the top-line of HP.
Final verdict to be released
True, HP’s results might end up being a mixed bag if all the operating segments are considered, and they perform consistently. Though analysts have cast their opinions separately on the operating segment's growth possibilities, only the final results will give the idea on whether HP’s turnaround program has actually borne fruit. Let’s wait and watch out for the final release of the fourth quarter earnings of the fiscal year.
