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HP reports $8.9B Q3 loss on writedowns, weak sales, lowers full-year forecast

The loss is due largely to previously announced writedowns, but the company's PC and server business was also weak

Hewlett-Packard on Wednesday announced a US$8.9 billion loss for its third quarter ended July 31 due to writedowns and weak hardware sales and also said full-year results would be at the low end of its previous guidance.

Earlier this month, HP said it would take a $8 billion "impairment of goodwill" writedown against its services division. "Goodwill" refers to less tangible assets, such as brand strength, that are considered when figuring out a company's total value. HP's $13.9 billion acquisition of services provider EDS has been roundly criticized as too costly.

HP also said earlier this month that it would have a bigger than expected charge in the third quarter in connection with a workforce reduction plan announced earlier this year.

Revenue for the third quarter fell 5 percent year over year to $29.7 billion.

Without the writedowns and other one-time costs, third-quarter profits would have been $1.97 billion, down 9 percent year-over year.

Excluding one-time costs, full-year earnings per share will be $4.05 to $4.07. In May, HP said it expected full-year earnings of $4.05 to $4.10 per share.

Personal Systems Group revenue in the quarter fell 10 percent to $8.6 billion, with a 12 percent drop in consumer spending and a 9 percent fall in commercial purchases. Within the segment, desktop units fell 6 percent and notebook units dropped 12 percent.

Imaging and Printing Group sales were down 3 percent. While commercial sales rose 4 percent, consumer purchases dropped 13 percent, according to HP.

Services revenue fell 3 percent.

Enterprise servers, networking and storage sales dropped 4 percent, with the biggest hit taken by Business Critical Systems, where revenue fell 16 percent. Networking sales rose 6 percent.

Software sales rose 18 percent, driven in part by last year's acquisition of Autonomy. However, new license growth, a key indicator of health in a software business and the mood of customers for starting new projects, rose only 2 percent. Software-related support revenue was up 16 percent and software services rose 65 percent.

HP rival Dell also released financial results this week, reporting Tuesday that second-quarter profit had fallen 18 percent due to lower sales of desktop PCs, laptops and other mobile products.

HP executives are expected to discuss the results further during a conference call later Wednesday.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is [email protected]


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