Skip to main content

Shares of


(HPQ) - Get HP Inc. Report

tumbled Tuesday despite the company's announcement of solid

fourth-quarter results

late Monday.

H-P reported fourth-quarter revenue of $33.6 billion, a 19% increase on the same period last year, just beating analysts' estimate of $33.32 billion. Despite the revenue hike, however, the company's profit slipped to $2.11 billion, down slightly from $2.16 billion in the prior year's quarter.

The computer-manufacturer's shares fell $2.19, or 6.1%, to $33.51 Tuesday, underlining the high level of investor uncertainty about tech spending. The Nasdaq was losing around 2%.

H-P, which is in the throes of a major cost-cutting effort following its $13.9 billion acquisition of services giant


, promised to drive yet more savings out of its business during a conference call late Monday.

"Our company is leaner and more flexible than ever and yet we still have more work to do, which is actually good news," said H-P chief executive Mark Hurd.

Hurd explained that the company expects to shave more than $1 billion off its costs in 2009. The company, which

cut 2,300 jobs

in the fourth quarter related to its EDS acquisition, is also examining other cost-savings. These include improving supply-chain efficiency, exploiting lower component costs and curtailing hiring.

Analysts at Citigroup Global Markets reiterated a buy rating on H-P, describing the firm as the IT hardware vendor "most likely to grow non-GAAP EPS during fiscal year 2009". Factors driving this growth include synergies with EDS, cost-cutting efforts and favorable component pricing, according to analyst Richard Gardner.

Scroll to Continue

TheStreet Recommends

For the first quarter of H-P's fiscal 2009, Citigroup now forecasts earnings of 94 cents a share, compared with its initial estimate of 93 cents. "Our conservative valuation analyses suggest a twelve-month fair value of at least $58, or 62% upside from the current share price," added Gardner.

H-P which said it expects first-quarter earnings between 93 cents and 95 cents a share, still faces plenty of challenges at a time of shrinking technology budgets. Revenue from the company's Enterprise Storage and Servers division, for example, fell 1% year-over-year, as did revenue from the company's Imaging and Printing Group.

Hurd blamed the imaging shortfall on consumers delaying their purchases, as well as increased use of wireless technology in the home, which means that fewer printing units are needed.

"It's important to note, we're being aggressive on the cost side in IPG," he said, in response to an analyst's question, but added that the company must walk something of a tightrope when it comes to pricing. "We don't want to go in with a broad aggressive pricing that churns up our own installed base," he added.

Even in a tough spending environment, though, H-P is doing the right things, according to Jayson Noland, an analyst at R.W. Baird.

"Though macro-economic conditions are likely to remain very challenging, we believe H-P will effectively manage expenses, expand operating margins, and drive EPS" in the coming fiscal year, he wrote in a note released Tuesday.

Noland maintained his outperform rating on the company's shares.

The Palo Alto, Calif.-based computer maker's fourth-quarter gross margin was 22.9%, down from 24.7% in the same period last year. The decrease was driven primarily by the addition of EDS, according to H-P.

H-P, which competes with


(DELL) - Get Dell Technologies Inc. Class C Report





(AAPL) - Get Apple Inc. Report

in hardware, and with


(IBM) - Get International Business Machines Corporation Report

in services, acknowledged the tough economy during Monday's conference call.

"We don't know how the economy will evolve, but at this point we are expecting the market to be challenging in '09, particularly for discretionary IT spending," said Hurd, as H-P guided below analysts' revenue estimates.

For the first quarter, H-P projected revenue of $32 billion to $32.5 billion. Analysts were expecting revenue of $32.75 billion.