Margins Still Mastering H-P

"We are taking aggressive actions to insure improvements in the next three to six months," said Vyomesh Joshi, executive vice president of H-P's Imaging and Personal Systems Group. He said to expect increased investments in pricing, retail aisle presence and promotions. But Joshi said operating margins will decline as profitability takes a back seat to growth. "We are going to drive faster hardware growth and recapture some share losses."

In PCs, too, H-P is caught between Dell's mass-produced boxes on the low end and IBM's(IBM) ability to offer a comprehensive set of hardware and services at the high end.

Still, H-P executives were adamant that they can compete. In the near term, the company plans to try to regain lost market share, reduce its costs and improve its supply chain.

"We do believe that we can do -- and are doing -- some things that will ultimately help us resist the downward gross margin trend that we have been experiencing," said Wayman during a conference call. "We don't believe the year-over-year change we saw here is the kind of change we'll see going forward."

But margins weren't the only problem that analysts foresaw for H-P.

Analyst Robert Cihra at Fulcrum Global Partners said the company's shares will likely remain stagnant for several months, lacking any catalyst to inspire buyers. "We'd worry H-P now not only needs to find new leadership, and possibly strategic direction, but does so facing the headwind of its two seasonally weakest quarters," he said in a morning research note.

Wednesday's report marked the beginning of a new era for H-P, which removed Fiorina from the corner office last week. She was ousted as H-P's chief executive on Feb. 9 following growing criticism of her management style and her lack of momentum in business areas outside of printing.

The change comes at a crucial time. Only a month ago, H-P placed its personal computer systems group under the management and oversight of its imaging and printing unit.

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