H-P Gets Much Cheaper

Updated from 1:36 p.m. EDT

Shares of Hewlett-Packard(HPQ Quote) were pummeled Thursday, losing over 17% after the hardware giant blindsided Wall Street with news that its third- and fourth-quarter earnings would badly miss estimates because of problems in its server and storage division.

The stock was recently down $3.36 to $16.16.

In an announcement that stunned Wall Street, the Palo Alto, Calif., tech outfit confessed Thursday to a seven-cent earnings shortfall for the fiscal third quarter ended July 31, while forecasting an earnings miss that may be as wide as eight cents in the current quarter.

The timing of the news was in some ways as striking as the substance: Wall Street watchers sounded puzzled that H-P would chose to broadcast the huge shortfall on the same day rival Dell is expected -- as usual -- to meet or possibly even beat expectations in its latest quarter.

H-P said before the bell that it expects to earn 24 cents a share, excluding various expenses, on revenue of $18.9 billion, and between 35 cents and 39 cents a share on sales of $21 billion to $21.5 billion in the fourth quarter. The third-quarter revenue estimate represents 9% growth from the 2003 quarter.

Analysts surveyed by Thomson First Call had been forecasting earnings of 31 cents a share on revenue of $19.01 billion in the third quarter and earnings of 43 cents a share on revenue of $21.34 billion in the fourth.

While bad news, Hewlett-Packard's shortfall did not reflect significant weakness in any major consumer segment or its massively profitable printer division. Rather, the miss appeared entirely attributable to misjudgments in its division that sells powerful hardware arrays to business customers, a segment where Dell and IBM(IBM Quote) have been consistenly outgrowing H-P.

"Although we are satisfied with our performance in personal systems, imaging and printing, software and services, these solid results were overshadowed by unacceptable execution in enterprise servers and storage," the company said.