Latest / Bloomberg Intelligence / Bloomberg's Srinivasan on HP: Printing Dragging Down EPS(Audio)

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Bloomberg's Srinivasan on HP: Printing Dragging Down EPS(Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day. If Bloomberg
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  Speaker 1: this is a Bloomberg Business Flash Broom, Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pellett. Moments ago we heard from HP in
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  Speaker 1: kit reported third quarter profit the top to analysts estimates
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  Speaker 1: help by improving demand for laptops, but shares our trading lower.
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  Speaker 1: It says profit excluding some items will be thirty four
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  Speaker 1: to thirty seven cents a share in the current quarter.
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  Speaker 1: Now that would fall short of analyst projections of forty cents.
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  Speaker 1: A sell off in drugmakers dragged US stocks lawer today.
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  Speaker 1: The SMP five hundred index down eleven to seventy five,
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  Speaker 1: a drop of five tenths upon percent down, Industrials down
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  Speaker 1: sixty five points to drop of four tenths of one percent,
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  Speaker 1: and has stack down forty two, a drop of eight
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  Speaker 1: tents of one percent. The tenure down three thirty seconds,
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  Speaker 1: the yield one point five six percent, Gold down eighteen
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  Speaker 1: ten the ounce the thirteen one four, a drop there
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  Speaker 1: of one point four percent. West Texas Intermediate crewed down
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  Speaker 1: a dollar thirty at a barrel at fourty six seventy one,
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  Speaker 1: a drop there of two point nine percent. So again recapping,
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  Speaker 1: we did see a down dave for stocks SMP five
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  Speaker 1: hundred index falling eleven, a drop there of five tenths
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  Speaker 1: of one percent. I'm Charlie Pellett. That's a Bloomberg business flash.
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  Speaker 1: You're listening to taking stock with bin box at Kathleen
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  Speaker 1: Hayes on Bloomberg Radio. Shares of HP are lower by
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  Speaker 1: more than five and a half per cent right now
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  Speaker 1: after reporting a third quarter results that were better than
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  Speaker 1: analysts estimates. But looking into the fourth quarter, HP says
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  Speaker 1: that earnings per share from continuing operations will be between
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  Speaker 1: thirty four and thirty seven cents versus estimates of between
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  Speaker 1: the thirty eight and forty four cents. Here to tell
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  Speaker 1: us more is on En trinivasan On a is an
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  Speaker 1: expert when it comes to the semiconductor and hardware business.
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  Speaker 1: He's an analyst for Bloomberg Intelligence and Heat joins me
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  Speaker 1: now on tell us about HPS results and also their
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  Speaker 1: future guidance. The future guidance is the number one driver
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  Speaker 1: of why perhaps the stock is down and it's printing.
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  Speaker 1: The printing business of HPING continues to be very, very weak.
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  Speaker 1: If you look at Q three numbers, it was down
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  Speaker 1: fourteen percent year on year, even with currency it was
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  Speaker 1: down ten percent. UM. It's got a very strong operating
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  Speaker 1: margin relative of the PC business. But if you look
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  Speaker 1: at the hardware side of the printers, I was down
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  Speaker 1: ten percent, commercial side was down, consumer sides were down,
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  Speaker 1: supplies were down, and and we're not seeing a substantial
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  Speaker 1: improvement in that side of the house. So Personal Systems
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  Speaker 1: was okay, I mean it was flat here on her
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  Speaker 1: up in constant currency, um and um. You're starting to
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  Speaker 1: see some potential stabilization there, but printing continues to be
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  Speaker 1: a drag on the business. And fourth quarter guidance is weak,
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  Speaker 1: and they're doing some restructuring and continued restructuring, my dad,
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  Speaker 1: but you want to see some potential light at the
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  Speaker 1: end of the chunnel, this quarter was not it. Well,
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  Speaker 1: you're you're right about the continuing cost cuts because according
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  Speaker 1: to the company's chief executive Dion Weisler Uh, they expect
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  Speaker 1: to reduce costs by over a billion dollars. I mean,
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  Speaker 1: cost gusts do not revenue. You can't make your revenue expand.
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  Speaker 1: And in one of the things that we want to
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  Speaker 1: see is yes, the operating margin improvement of the castle
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  Speaker 1: improvements are are good, particularly their structural cost reductions, and
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  Speaker 1: those are those are great things. But one of the
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  Speaker 1: things that we do want to see from the analyst
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  Speaker 1: community is the slowdown in the rate of decline of
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  Speaker 1: both PCs and printing and potential for improvement. And and
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  Speaker 1: we don't see that in the current quarter or the guidance.
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  Speaker 1: When the chief executive says that they are trying to
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  Speaker 1: invest in higher end products in order to increase their profitability,
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  Speaker 1: what kind of higher end products are they talking about.
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  Speaker 1: So in the PC segments that could involve m gaming
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  Speaker 1: PCs or two in one laptops, laptops and tablets that
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  Speaker 1: are detachables for example UM and in the printing business
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  Speaker 1: it is more um A three printers the equivalent of
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  Speaker 1: the office printers that you have relatively one per floor
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  Speaker 1: if you made the big ones that are typically made
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  Speaker 1: by Cannon and xerox UM. And the reason why those
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  Speaker 1: are UH an attractive market is because they are high priced,
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  Speaker 1: their high margin, and the supply UM agreement that you
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  Speaker 1: have for those printers is also very attractive. So for
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  Speaker 1: all those reasons, those segments are attractive, but I mean
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  Speaker 1: they're there. These are relatively small segments, and there would
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  Speaker 1: entrenched competition in place or entrenched leaders in place. So
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  Speaker 1: uh HP has got a little ways to go in
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  Speaker 1: order to move its own revenue leadle from those segments. Well, indeed,
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  Speaker 1: just taking a look at the printer net revenue, as
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  Speaker 1: you said earlier, down four personal systems UH net revenue,
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  Speaker 1: there was flat commercial net revenue down three percent, but
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  Speaker 1: the consumer business the revenue was up eight percent. What
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  Speaker 1: is HP doing in order to move that particular metric higher.
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  Speaker 1: So one of the things that we've seen last quarter
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  Speaker 1: from the market research from you did see um um
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  Speaker 1: us PCs grow for the first time in several years.
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  Speaker 1: So HP is very strong in UM in the market UM.
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  Speaker 1: So that definitely eight This particular seven second is HB
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  Speaker 1: has said that it's walking away from less profitable PC
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  Speaker 1: areas where it's not trying to maintain share for the
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  Speaker 1: sake of it and it wants profitable share UM and
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  Speaker 1: to that those two factors put together, UM likely impacted
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  Speaker 1: that eight percent consumer growth on a year on year basis,
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  Speaker 1: and even the commercial net revenue decreased. That's a reasonable number.
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  Speaker 1: One PCs are actually defining substantially more than that forward
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  Speaker 1: to seven percent, if you go back one to three quarters.
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  Speaker 1: And then when it comes to the stock market, it's
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  Speaker 1: all about how much something could be worth. And currently
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  Speaker 1: the market cap of HP is twenty four and a
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  Speaker 1: half billion dollars, but the company has more than five
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  Speaker 1: and a half billion dollars in gross cash Is that
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  Speaker 1: attractive to investors? It is, and in the cash flow profile,
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  Speaker 1: particularly with the cost cuts um are all attractive. But
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  Speaker 1: at the end of the day, if you look at
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  Speaker 1: the the technology media telecom space is filled with a
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  Speaker 1: lot of these companies that are legacy A companies. You
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  Speaker 1: have a bank, you have c s C. You have
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  Speaker 1: a lot of these sorts of companies that are slow growth,
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  Speaker 1: relatively profitable, and they're in permanent restructuring more from a
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  Speaker 1: cost containment perspective. But you know, after a little while,
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  Speaker 1: people gravitator tech for sales and earning growth and you
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  Speaker 1: have to demonstrate continuity there on trini us. And thank
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  Speaker 1: you very much, senior semiconductor hardware analyst for Bloomberg Intelligence.
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