Today’s HP Inc (NYSE:HPQ) has nothing in common with your father’s HP but the brand name.
Yesterday’s company was the father of Silicon Valley, founders David Packard and Bill Hewlett being legends from the days of radio and oscilloscopes. It was the home of innovations that became the PC revolution.
Today’s HPQ is a simple manufacturer or PCs and printers. Better to think of it under the name it had before Carly Fiorina bought it early in the last decade: Compaq. The U.S. operations today are run out of Compaq’s old offices near Houston, after all.
Tech analysts see HP as a bellwether in those aging markets. They are searching for signs of life, which might impact the stock of operating system vendor Microsoft Corporation (NASDAQ:MSFT).
What did they find in HP’s third quarter?
HP Inc Beats Earnings Estimates
HP delivered a solid beat on the top and bottom lines, but weak guidance that may mute the market’s reaction.
Revenues came in at $11.89 billion, $500 million above estimates, and earnings were $783 million, 49 cents per share of HPQ stock. Analysts were hoping for earnings of 46 cents per share on revenues of $11.46 billion. The results also were 2 cents ahead of the “whisper number.” A year ago, sales were higher ($12.36 billion), and so were profits ($854 million).
Netbook sales were given the credit for the gain.
But the earnings release gave some downbeat guidance for the rest of the year, with full-year earnings estimated at just $1.46 to $1.49 per share.
The result was a sharp drop of about 5% for HPQ stock in after-hours trading.
Live as an OEM, Die as an OEM
HP today is basically a Windows original equipment manufacturer, or OEM. It tries to design and have built (profitably) PCs that run the Microsoft Windows operating system. As that business continues to drag on results, however, HP has also gone into producing Chromebooks that run Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) operating systems, with prices starting at under $500 — half what a PC would start at just a few years ago.
Improvements tend to be incremental, focused on design rather than technology. HP is working on laptops that act as docking stations for phones, for instance, and is now the leading PC brand in India.
HPQ emphasizes its work in PCs because these days it’s the printer business that is drying up. All of the company’s rivals in this area — Xerox Corp (NYSE:XRX), Lexmark International Inc (NYSE:LXK), and Canon Inc (ADR) (NYSE:CAJ) — have reported weak results.
Shares in the company plunged after the split from Hewlett Packard Enterprise Co (NYSE:HPE), run by former HP CEO Meg Whitman. In February, HPQ shares were as low as $9.02. Since then they have staged a mighty comeback, to Wednesday’s close at $14.55 per share.
HPQ stock has gone from being a growth play and become a yield play. The current dividend of 12 cents yields 3.4%, and if it can hit its financial marks, it should be able to increase that easily.
Analysts see a manufacturer with just $6.7 billion in debt on $25.5 billion in assets, and with actual profit margins that can sustain it until something better comes along.
Something Better in 3D Printing
That something better is the Jet Fusion, a 3D printer that works differently from those that came before it. Instead of plopping beads of liquid plastic, it fuses customized powders, delivering bigger output faster, and holding out the promise of using a variety of stronger materials, like glass, many of which the company is working hard to develop.
The idea is to take 3D printing beyond prototyping and the slow production of highly-custom goods, like body parts, and into actual manufacturing.
The first product was delivered in May, after several years of development, but should be seen as Version One of a long-running line, with a long tail of supply and software sales.
What’s Next for HPQ?
HPQ stock might be weak over the next few days, as traders absorb the poor guidance. But the solid beat offers a chance for investors to make a little profit, and hope that the 3D printer finds a market.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
