HP Plans Aggressive Response to ‘Serious Competitive Battles’ in Consumer PC Business

The PC market is “weak” and channel inventories are “high across the industry” ahead of new product releases, HP CEO Meg Whitman said Wednesday on the company’s fiscal Q3 earnings webcast. HP’s Personal Systems Group (PSG) revenue dropped 10 percent year over year in the quarter to $8.6 billion on the weak market and “aggressive pricing” from competitors, Whitman said. HP is “locked in serious competitive battles,” she said, but the company will “fight to sustain our leadership position,” through targeted marketing and promotions in Q4.

Desktop sales, comprising 41 percent of the sales mix, were down 8 percent in dollars and 6 percent in units, the company said, while laptop sales, at 51 percent of the mix, skidded 13 percent in revenue and 12 percent in units. Overall, consumer PC revenue dropped 12 percent for the quarter and the commercial PC business fell 9 percent, the company said. In HP’s Imaging & Printing group (IPG), consumer printer sales plummeted 23 percent on soft demand, partially offset by a 4 percent rise in commercial printer business driven by higher value units, Whitman said.

HP expects PC demand “to remain challenging” and pricing competitive, Whitman said. The company is “under attack by very strong competitive pressures and we're going to respond,” she said, with changes to cost structure and with product lineup including thin and light Ultrabooks, a Windows 8 tablet for the enterprise market and two convertible laptop/tablets. The company will realize supply chain savings as a result of combining its PSG and IPG groups, she said. But commodity prices will increase slightly in Q4 on LCDs and dynamic random-access memory, Chief Financial Officer Catherine Lesjak said.

On previously announced workforce reductions during the quarter, HP achieved its goals with more than 4,000 employees leaving the company, Whitman said, but the impact wasn’t felt on the bottom line because of the timing during the latter part of the quarter. “Greater-than-expected acceptance of the early retirement program” has sped up job cuts and the company now expects roughly 11,500 employees to leave in fiscal 2012, compared with prior projections of 9,000.

HP’s geographic performance breakdown reflects the “continued macroeconomic challenges across the globe,” Lesjak said. Americas revenue of $13.4 billion was down 5 percent year over year, Europe, Middle East and Africa revenue slipped 4 percent to $10.6 billion and Asia-Pacific dropped 7 percent from Q3 2011 to $5.7 billion, she said. Growth in Russia and Eastern Europe was dragged down by declines in Western Europe, Lesjak said, and Asia-Pacific was down 6 percent in constant currency on continued weakness in China.

HP is in the early stages of its turnaround and restructuring efforts, Lesjak said. Consumer demand “remains soft in PCs and printing,” she said, resulting in inventory surpluses. The company will “look to manage sell-in” in response to the soft demand and high inventories, she said. The pricing environment in hardware is “even more challenging than we previously thought,” she said, and HP is cautious about growth prospects globally in both consumer and commercial spending. Fiscal year 2012 loss per share is projected to be $2.23-$2.25, she said.

HP reported a loss of $8.9 billion for Q3 compared with a profit of $1.9 billion in Q3 2011. Revenue of $29.9 billion was down 5 percent year over year, the company said. HP shares closed 8.2 percent lower Thursday at $17.64.