H-P's Vulnerabilities Starting to Show

American Technology Analyst Shaw Wu notes that short interest in H-P is up about 23% since late May, a reflection of the increasing bearish sentiment toward H-P.

Still, Wu rates H-P a buy, noting that the EDS deal will give H-P a chance to save costs by combining the two organizations' business operations.

And he says H-P's broad portfolio of technology products should offset any weak pockets within the business like inkjet printers and U.S. PC sales.

Analysts expect H-P to hit the high end of its financial forecast, with sales of $27.4 billion -- up 7.8% year over year -- and adjusted EPS of 83 cents for its recently-ended fiscal third quarter.

It's the outlook that's more worrisome.

The fact that H-P derives 70% of its revenue outside the U.S. has served it well, with robust demand in places like China, India and Russia keeping orders flowing. But the latest signs from abroad are not encouraging.

Business conditions are weakening in China, with reports of slowing factory orders and exports. In Europe's 15-nation eurozone, gross domestic product contracted in the second quarter -- the first time GDP has declined since the zone's creation in 1995.

Meanwhile, after years of flailing, the U.S. dollar is firming up. That means goods produced by American companies like H-P will be more expensive to overseas customers.

And it means H-P's top line will benefit less from the extra kick that comes from converting sales booked in foreign currencies back into dollars. Bernstein Research analyst Toni Sacconaghi reckons that the strengthening dollar could cause H-P to reduce its revenue outlook for the current quarter to below the $30.3 billion expected by Wall Street analysts.