H-P: 2009 to Be Cruddy to the End

Hewlett-Packard ( HPQ) does not expect a massive uptick in demand for its products during the rest of 2009, according to CEO Mark Hurd.

Hurd, who was speaking at the Morgan Stanley Technology Conference on Wednesday, said that he is not forecasting any improvement in demand from H-P's recent first quarter.

"What we saw in Q1 is what we will see for the rest of the year," he told those at the San Francisco event. "If we hit those demand models, we will do fine on the bottom line."

The tech giant, which recently lowered its 2009 revenue estimate, was seen as one of the few tech companies successfully withstanding the current financial storm but is now feeling the effects of the IT spending crunch.

H-P has estimated that its revenue for fiscal 2009 will decline between 2% and 5% year over year to between $112.5 billion and $116 billion.

The company's shares slipped 67 cents, or 2.34% to $27.98 in early trading Thursday, outpacing a broader decline in tech stocks that saw the Nasdaq dip 1.41%.

Despite an increasingly tough economy, Hurd promised to keep the core of H-P's business intact.

"We are not cutting our sales force, we had more engineers at the end of the quarter than we had last year at this time," he said. "We are investing into our services business, but we are very focused at getting cost out at every other turn."

Hurd struck a similar tone during H-P's first-quarter conference call last month, underlining the scale of the challenge facing the tech sector.

H-P had originally planned to reduce its costs by $1 billion during 2009, although the CEO said this figure might be on the conservative side.

"We will obviously be doing better than that," he said, adding that H-P is trying to eliminate costs and streamline its expenses. For example, the firm has restructured its 401(k) plan in the last couple of weeks in an attempt to better organize its costs.

Hurd also said H-P has work to do in its lucrative Imaging and Printing Group (IPG), namely by overhauling its supply chain, which he estimates could be worth hundreds of millions of dollars in cash flow. "I look at that as just as big an opportunity as any part of the cost structure," he said.

H-P's ability to manage its costs and the diverse nature of its business have helped make the company one of the more attractive tech stocks in the downturn. After losing around 42% of its value during the last 12 months, H-P's stock is seen as offering a good buying opportunity to shrewd investors.

The company can also count on cost synergies from its recent $13.2 billion acquisition of services giant EDS, which is already helping H-P land some big deals.

"In May, when we announced we were going to buy them, I think I was the only guy that liked the deal on planet earth," said Hurd. "Today, I can't imagine not having done it."

H-P would not have clinched its recent $1 billion deal with U.K. insurance giant Aviva without EDS, according to Hurd. The tech giant has also won a deal with another "very large" financial services company and a Fortune 50 outfit thanks to EDS, he said, explaining that the pipeline for similar deals looks healthy.

However, the CEO acknowledged that the economic downturn has affected the M&A climate.

"While these valuations have gone down, which makes those assets much cheaper, our stock has gone down, which makes the bar harder to leap over as it relates to the alternative uses of capital," he said.

The Palo Alto, Calif.-based firm, which competes with the likes of IBM ( IBM) and Dell ( DELL), nonetheless has the same "filter" for M&A that it has always had, according to Hurd.

"We are not buying anything that doesn't make strategic sense, we are not buying anything that doesn't make financial sense, and we are not buying anything that we can't run," he said.

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