HP’s Consumer Group Hit With 15 Percent Revenue Decline

The hard drive shortage stemming from Thailand floods along with “continuing difficulties in China” led to 15 percent fiscal Q1 2012 revenue drop in HP’s Personal Systems Group (PSG), said CEO Meg Whitman during the company’s earnings webcast Wednesday.

Company-wide, revenue dropped 7 percent -- “8 percent in constant currency” -- to $30 billion, with more than half of the fall-off attributable to the hard drive shortage, Whitman said. Supply of hard disk drives will “remain constrained” in fiscal Q2, Whitman said, saying the company will “prioritize profitability, product performance and quality over shipment volume and market share.” The impact from the shortage will be felt less during Q2 and the company should be “through the correction in channel inventory supply” by the end of Q2, said Chief Financial Officer Cathie Lesjak.

Whitman affirmed PSG’s importance to the company due to its “great return on invested capital and a lot of synergies.” Following the company’s announcement last summer that it was exiting the PC market and then a reversal of that decision in the fall, Whitman said PSG returned “to its roots as an innovation leader” during the quarter. Products like the Spectre UltraBook launched at CES are necessary to drive demand for HP products, she said. The company “underinvested” in innovation over the past few years, and “we've been late to market too often,” she said. “We have to lead again."

HP has x86-based products lined up for Windows 8, and is “well-positioned” for the holidays on x86, Whitman said. “The better Windows 8 is, the better off we are,” Whitman said: “We're rooting for a fantastic Windows 8 product that’s delivered on time that we can get to market before the holiday season.” The PSG business is only part of the company’s portfolio and doesn’t affect other businesses, though, she noted.

HP’s Imaging and Printing business, “the lifeblood” of the company, saw revenue decline 7 percent in supplies and hardware and margins fell to 12.2 percent, Whitman said, citing soft consumer and small office demand. Ink sell-through is at “pretty low levels,” she said, saying consumers are doing less photo printing at home. The printing business is “being pressured on multiple fronts,” including yen appreciation of 7 percent from January to January, and the group has “work to do” to find ways to grow “given the realities of today’s marketplace,” she said. The group has to “think hard” about how to accelerate new business growth to “compensate for the loss of ink,” she said.

Whitman outlined steps HP needs to take to “stabilize” its business while it attempts to reverse a downward course it has taken over the past couple of years. “We have to stop revenue declines,” she said, and then “gain share in every market.” Revenue declines will start to flatten out “as we get into 2013,” she said, but will be affected by factors including supply and the macroeconomic climate. “Turnarounds are not done in 2 years and often take 3, 4 or 5 years,” Whitman said.