Many analysts consider HP -- a heavyweight in PCs, computer servers and technology services -- a good defensive stock for tech investors in the economic downturn; it is reliably profitable with strong diversification and recurring revenue.
But top-line growth continues to be a challenge for many tech companies amid a pullback in demand. In February, HP cut its full-year outlook after quarterly revenue missed expectations.
Although there are some signs of improvement in consumer demand, analysts say, enterprise spending is still challenged.
Clearly HP wasn't immune to the slowdown, and that was evident in their results in February, said Pacific Crest Securities analyst Brent Bracelin.
He expects revenue to bottom out this quarter or next. With revenue challenged, he says investors will focus on the company's cash flow and how well it protects profit.
HP -- still working through last year's blockbuster purchase of services company EDS -- has been busy cutting costs, as hardware sales have been stung by the poor economy.
Wall Street analysts, on average, expect earnings per share for HP's second quarter ended April 30 to show a decline of 1 percent and revenue a slip of 3 percent from a year earlier. The average forecast is for profit, excluding special items, of 86 cents a share on revenue of $27.5 billion, according to Reuters Estimates.
HP has a knack for beating estimates on the bottom line. Although the company posted in-line profit last quarter, it bested the Street's estimate for seven quarters prior to that.
But HP's shares have been left behind in the rally in technology stocks this year. The stock is down slightly, while shares of rivals International Business Machines Corp
HP's shares trade at around 9 times forward earnings, according to Reuters Estimates, versus IBM's 11 and Dell's 10.
Chief Executive Mark Hurd said in March he does not expect any improvement in demand for the remainder of the year.
HP is the world's largest PC maker. It is the second-largest IT services company and No. 2 maker of servers, trailing IBM in both. Printing, one of the company's other major business lines, could be a source of weakness in the quarter, analysts say.
However, in a tough market, HP managed to grow overall PC shipments by 2.9 percent in the first calendar quarter, according to research group IDC, and increase its global market share to 20.5 percent.
HP is also facing fresh challenges from new players' leaps into the enterprise segment. Oracle Corp's
Collins Stewart analyst Ashok Kumar said recent activity in the sector means HP must be open to a possible deal, because organic growth in the corporate market will be difficult.
Despite having digested the sizable acquisition of EDS, they'll have to keep an open mind for opportunities to come. That's the new IT landscape, Kumar said.
Oracle's buy of Sun would make it No. 2 in the $17 billion market for high-end Unix computers used in corporate data centers, putting it behind IBM but ahead of HP.
Kumar said HP shares have not moved up recently because the news at the moment is all about taking out expenses. I think to attract a new class of investors to the story there has to be something more than cost-cutting.
(Reporting by Gabriel Madway, editing by Gerald E. McCormick) Keywords: HEWLETTPACKARD/