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HP May Report Lower Q2 Results, Job Cuts In Focus

 May 22, 2012 11:19 AM

( By Mani) Investors watch the second-quarter earnings results from Hewlett-Packard Co. (NYSE:HPQ) to gauge the trends in the PC market industry. However, this time the focus would be more on the corporate side rather than earnings as media reports say that the PC maker would announce a restructuring, which may affect as many as 30000 jobs at the Palo Alto, California-based company.

HP, which is scheduled to report its quarterly numbers on May 23, is expected to earn 91 cents a share, according to analysts polled by Thomson Reuters. The consensus earnings estimate represents a drop of 27 percent from last year when it earned $1.24 a share. In the preceding four quarters, HP's earnings have topped Wall Street views.

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Two analysts revised their earnings projections upward in the past 30 days, while one analyst has cut his outlook. However, the consensus earnings estimate of 91 cents has not changed for the past 60 days.

Quarterly revenue is projected to decline 5.4 percent to $29.92 billion from $31.63 billion in the same quarter last year. HP's revenue has been falling for the past two quarters as dwindling sales of PCs coupled with a shortage of hard disk drives (HDD) taking a toll on its results.

Shares of the company have fallen 25 percent since its first-quarter report in February that showed a 44 percent slip in profits, leading the company to issue a weak second-quarter earnings forecast. The company expects second-quarter GAAP earnings of 68 to 71 cents a share and non-GAAP earnings of 88 to 91 cents a share.

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Faced with a decline in demand for computers and services, HP is reportedly planning to cut as much as 30,000 jobs or 9 percent of its workforce to cut costs. Bloomberg says HP may cut 25,000 jobs, while a report from All Things D, which is affiliated with The Wall Street Journal, took the tally to 30,000 jobs.

If the job cuts occur, it will be the biggest step taken by CEO Meg Whitman, who took the helm in September 2011 after HP abruptly ended the 11-month tenure of her predecessor, Leo Apotheker.

"We anticipate HP to announce a sizable restructuring to right-size the company following its decision to combine PCs and printers," RBC Capital Markets analyst Amit Daryanani wrote in a note to clients.

Daryanani said HP will announce a restructuring charge of $1.5 billion to $2 billion to right-size its operations.

The analyst, who expects second quarter earnings in line with Street, said HP should see revenue upside from PC as HP's market share rebounded materially in the March quarter and margins should remain stable in the 4.5-5.0 percent range.

According to market research firm Gartner, HP's first quarter 2012 market share grew to 17.2 percent up from 15.4 percent in the fourth quarter of 2011. This is likely due to a return to normalcy after the turbulence regarding a possible Personal Systems Group spin-off. The estimated 180 basis points increase in market share could provide tailwinds for HP's topline growth heading into the April print.



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