Earnings Preview: H-P to report 4Q results

OVERVIEW: Faced with a sharply falling stock price, tech bellwether HP tried to reassure Wall Street by preannouncing better-than-expected fourth-quarter earnings and 2009 guidance.

The announcement, coming a week ahead of HP's scheduled earnings release Monday, was a bright spot for Silicon Valley, which is reeling from layoffs at Yahoo Inc. and Sun Microsystems Inc. and gloomy forecasts from chip maker Intel Corp. and Cisco Systems Inc. Rival computer-maker Dell Inc. also reported falling profit and sales.

HP's announcement succeeded in stopping the decline in HP's shares, but has not been enough to lift the stock back to its levels from September, when the financial crisis worsened and stocks tanked.

Fears still persist about HP's heavy exposure to slumping hardware sales industrywide. More than half of Palo Alto, Calif.-based HP's $104 billion in revenue last year came from sales of personal computers and servers and storage machines--the same equipment many companies and consumers are now buying less of because of the economic downturn.

The company's pot of gold remains its ink business, a steady source of revenue because of the constant need to replenish printers and copiers with ink. That division contributes half of HP's entire operating profit.

Mark Hurd has proved a master cost-cutter in three years as CEO of HP, a skill that has helped the company meet Wall Street's expectations while competitors are falling short of theirs. He's overseeing a monster restructuring now as HP integrates a $13.9 billion trophy: Electronic Data Systems Corp., which HP acquired to challenge IBM Corp. for technology services contracts such as outsourcing or data-center management.

HP is cutting 24,600 jobs over the next three years, nearly 8 percent of HP's 320,000-employee work force. Most of those cuts are coming from EDS.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect HP to earn $1.01 per share on $33.3 billion in sales for the fourth quarter. HP said in its preannouncement that profit excluding items was $1.03 per share and sales were $33.6 billion.

ANALYST TAKE: Thomas Weisel Partners analyst Doug Reid wrote in a recent note to analyst that his firm is "incrementally more positive" about HP's shares but added that the severity of the economic downturn isn't fully known and could hurt HP worse than it anticipates.