Hewlett Packard
Company (HPQ) is scheduled to announce
its second quarter 2011 results on May 18, 2011, after the close of
market and we don’t see much variation in analyst estimates at this
point.
Fourth Quarter
Overview
The company reported first
quarter 2011 earnings per share (EPS) of $1.36, exceeding the Zacks
Consensus Estimate of $1.29. However, revenue of $32.3 billion fell
slightly short of the Zacks Consensus Estimate of $32.9
billion.
HP’s revenues increased
4.0% to $32.3 billion reported in the year-ago period, on a
constant currency basis. The company reported broad-based revenue
growth across all its segments. Moreover, the company saw
sequential increases in every category; which includes consumer,
commercial, desktop and notebook.
On a geographical basis,
the Americas reported a 5% increase in revenue. Increases of 4% and
2% were also recorded in Europe and the Middle East and Africa,
respectively. International markets accounted for 65% of the total
revenue in the fourth quarter, with revenues in the BRIC countries
(Brazil, Russia, India and China) increasing 11% on a
year-over-year basis and comprising 11% of the total
revenue.
Diluted earnings per share
on a GAAP basis were $1.17 in the first quarter compared with 93
cents in the prior-year quarter. After adjusting for certain items,
the non-GAAP EPS was $1.36, compared with $1.07 in the prior-year
quarter.
For the second quarter of
fiscal 2011, HP expects revenues of $31.4 billion to $31.6 billion,
GAAP diluted EPS in the range of 99 cents to $1.01, and non-GAAP
diluted EPS in the range of $1.19 to $1.21. Management's fiscal
2011 revenue guidance is in the range of $130.0 billion to $131.5
billion, GAAP diluted EPS in the range of $4.46 to $4.54, and
non-GAAP diluted EPS in the range of $5.20 to $5.28.
Agreement of
Analysts
Out of the thirty one
analysts providing estimates for the second quarter, none have made
any estimate revisions in the last thirty days. For the July
quarter, analysts have not made any revisions in the last thirty
days. The same is witnessed for fiscal years 2011 and
2012.
Most of the news flow
relating to HP continues to be positive. As per the figures
published by IDC and Gartner, HP still rules the computing world,
with the largest market share of 18.8%, which declined from 19.6%
in the fourth quarter of 2009.
Moreover, the company has
retained its leadership position in the Server segment for calendar
year 2010. The data published by the leading market research firm
IDC claims that HP accounted for around 39.0% of the total x86
server revenue for 2010. The company’s revenue from the x86 servers
grew 34.0% year over year. Moreover, the company has remained glued
to the number one position in the x86 server markets for 59
straight quarters.
Moreover, some analysts
also believe, that the company is well positioned to benefit from
the growing small and medium business (SMB) segment. It is also
rationalizing its core portfolio by strengthening the core
businesses and relocating some production to low-cost regions (such
as sending its mono-laser business to Shanghai). Moreover, the
company is currently focused on growing its base in emerging
economies.
On the flipside, analysts
also believe that HP is facing significant competition in the
printing space given the continuous roll out of printing devices at
competitive prices by other technology giants including
Samsung, Canon
(CJ), Epson, and
Lexmark
(LXK). This may initiate a
price war in the printing space, which in turn will hurt HP’s
margins going forward.
However, the industry is
yet to realize the full potential of HPQ’s broad printer product
portfolio ranging from entry-level inkjet to high-end commercial
printers, 9000 printing and imaging patents, which has the
potential to provide some cost advantage to
end-consumers.
Magnitude of Estimate
Revisions
There has been some
revision in estimates, since the company reported its third quarter
2010 results. Overall, estimates for the upcoming quarter have gone
down from $1.25, 90 days ago to $1.21 (current), with no changes in
the Zacks Consensus estimate over the past 30 days.
For fiscal 2011, estimates
have remained unchanged over the past 30 days. For 2012, estimates
have gone down from $5.72, 90 days ago to $5.67 (current), with a
3-cent downward movement in the last 30 days.
Recommendation
Hewlett-Packard rules the
computing world with its strong business model and leadership
position in both PC and Server segments. The company is also well
positioned to challenge Cisco Systems
Inc (CSCO) in the networking space
and gain significant market share. The company also expects to
benefit substantially from the revival in the US and Asian
demand.
Despite the company’s
market position and compelling product line, we remain cautious
about future growth, especially as, competition from other big
technology players, such as Cisco Systems,
Apple
(AAPL), Acer,
Microsoft
Corp (MSFT),
Dell
Inc. (DELL) as well as other smaller
Asian players may moderate profitability to some extent.
APPLE INC (AAPL): Free Stock Analysis Report
CANON INC ADR (CAJ): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
DELL INC (DELL): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
LEXMARK INTL (LXK): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
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