Today: Hewlett-Packard creates a partnership in China and shows continuing declines in sales, with hopes that the China deal and coming separation will help reverse its slide.
The Lead: HP sells part of China business, beats profit expectations
Hewlett-Packard began breaking apart its business Thursday with an eye on China, then showed why drastic measures are needed for one of Silicon Valley’s biggest tech companies.
CEO Meg Whitman completed a deal that sells off 51 percent of HP’s networking-hardware business in China to a local HP contractor, which should satisfy new Chinese regulations about local ownership while maintaining a strong presence for HP in the world’s most populous nation. HP received $2.3 billion in the deal, which precedes a planned separation of the entire Palo Alto company.
“In one move, we have repositioned HP and shifted the entire technology landscape in the entire Chinese market,” Whitman said a conference call Thursday.
HP could use a win somewhere, as stagnating revenue growth has spread throughout the entire company. Thursday afternoon, the company detailed quarterly profit of $1.01 billion on sales of $25.45 billion; after adjustments, HP claimed profit of 87 cents a share. Analysts on average expected adjusted profits of 85 cents a share on sales of $25.63 billion, according to Thomson Reuters.
While HP’s profits topped expectations, the company’s sales continued to disappoint ahead of a corporate split. Revenues declined 7 percent from the same quarter a year ago, while declining in all six of HP’s core business segments. The company’s personal computers and printers divisions, which will combine into their own company in November, fell 5 percent and 7 percent, respectively; the four business-focused divisions, which will form HP Enterprise after the split, fell between 1 percent and 16 percent.
Whitman singled out the performance of HP’s software division, which fell 8 percent, as “disappointing,” and suggested that the company’s networking business will be helped by the addition of Sunnyvale’s Aruba Networks. HP’s $3 billion acquisition of Aruba closed this week, and Whitman said Thursday that the sales teams are already active.
The consumer shortfall was surprising, however.
“The PC market is weaker than I expected at the beginning of the year,” Whitman said.
FBR Capital Markets analyst Daniel Ives said that HP will have to bet on the introduction of Windows 10 to turn around its PC business, just as the end of Windows XP support boosted sales at the end of last year. And splitting its business won’t change that.
“The split strategically doesn’t change the reality of the growth challenges ahead,” Ives said Thursday.
HP’s move in China to create a new company majority owned by a Chinese entity could be a good strategic move, Ives said, especially since HP seems ahead of competitors with that decision.
“Playing nice with the Chinese government is a logical strategy, and all these other tech players are going to have to go down that path,” he said, mentioning Microsoft, IBM and Cisco.
Whitman’s thrust for growth in the enterprise business could end up depending on data centers and businesses updating for the cloud, especially in China, as well as the addition of Aruba and any other acquisitions HP may have its eyes on, Ives said. Whitman said Thursday that HP will consider more acquisitions, especially for the enterprise side.
HP stock added 2.3 percent to $33.83 Thursday after the China sales news hit, then gained another 1 percent in late trading following the earnings announcement.
SV150 market report: Salesforce jumps, NetApp plunges
Wall Street notched mostly small gains Thursday, but Silicon Valley tech stocks jumped 0.7 percent thanks to a strong gain from Salesforce.
The San Francisco cloud-software pioneer rose 3.9 percent to $72.91 after surprising observers with its first profitable quarter in nearly three years, while maintaining a high growth rate. NetApp was not as fortunate, falling 10.1 percent to $31.77 after the Sunnyvale storage company showed off disappointing results and detailed layoffs of 500 employees. Joining HP in earnings on Thursday was Intuit, which showed off a strong performance during tax season — key for the Mountain View company’s financial-management software — and shares moves slightly higher in late trading after closing with a 0.8 percent advance to $104.16.
Apple added 1 percent to $131.39 after Morgan Stanley wrote a bullish note focusing on iPhone demand, and 9to5Mac reported on iOS changes aimed at a larger iPad. eBay gained 1 percent to $59.74 while reportedly testing an Amazon Prime competitor in Germany, and PayPal’s future CEO laid out plans to focus on mobile usage. Netflix jumped 0.2 percent to $623.02 after an upgrade from Citi, and Tesla Motors gained 0.5 percent to $245.62 amid a debate in Utah about its sales procedures. Google increased 0.6 percent to $542.51 while adding live streaming and advertising potential to YouTube, and seeking a patent for a creepy teddy bear. FireEye gained 2.3 percent to $43.22 after the Milpitas security company’s CEO discussed potential consolidation in the security market following rumors of a Cisco bid for his company.
Up: Salesforce, Pandora, SunPower, HP, FireEye, Yahoo, LinkedIn, Workday, SolarCity
Down: NetApp, AMD, Nvidia, GoPro, Cisco, Yelp
The SV150 index of Silicon Valley’s largest tech companies: Up 11.61, or 0.65 percent, to 1,802.68
The tech-heavy Nasdaq composite index: Up 19.05, or 0.38 percent, to 5,090.79
The blue chip Dow Jones industrial average: Up 0.34 to 18,285.74
And the widely watched Standard & Poor’s 500 index: Up 4.97, or 0.23 percent, to 2,130.82
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