Hewlett-Packard may Pull Back
Cost discipline and revenue growth go hand in hand, said CEO Mark Hurd during Hewlett-Packard’s (HPQ) conference call last night. HP emphasized its unit volume growth for the quarter.
* Notebook units up 57%; 40% revenue growth
* Printer hardware units up 18%; revenue up 7%
* Personal system group, in total, was up 19% in units, with revenue up 17%
HP was able to gain market share gains while improving margins. The margin improvement in such a competitive market was impressive, as GAAP operating margin increased to 7.3% up from 6.6%.
However, the balance sheet and cash flow statement metrics showed signs which historically preceded difficult times for the PC business. Guidance was a bit weak and inventory has jumped up. In addition, there was concern about the apples to apples comparisons of gross margin due to the Mercury acquisition. In addition, there was some concern about sources and uses of cash. Particularly about $1.48 billion cash outflow for rebates and other uses–also a signal of a weakening PC business.
HP is a stock you do not have to rush into. There are warning signs that this stock might run into a couple of quarters of weak results. Stay on the sidelines for now.
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