HP's profit plunges in Q1; revenue down 7%

Net income falls 44% as PC sales decline by 15%, enterprise sales by 10%

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When your business continues to decline, what else can a chief executive offer investors except turnaround talk?

And that's what CEO Meg Whitman offered in an official statement accompanying Hewlett-Packard's fiscal first-quarter earnings released after the market closed Wednesday.

HP reported a 44% decline in Q1 earnings from a year ago as the company's core PC business continued to suffer from a drop in the market for computers.

The company's net income for the quarter ended January 31 was $1.47 billion, or 73 cents a share, down from $2.61 billion, or $1.17 a share, in the first quarter of 2011. Excluding one-time items, HP's earnings were 92 cents, down 32% from $1.36 a year ago, but ahead of average forecasts of 87 cents a share.

First-quarter revenue dipped 7% to $30.4 billion from $32.3 billion a year ago, slightly below analysts' average estimates of $30.72.

Here's what Whitman, who took over last year from former CEO Leo Apotheker and reversed his decision to spin off the computer maker's PC division, said about Q1:

"In the first quarter, we delivered on our Q1 outlook and remained focused on the fundamentals to drive long-term sustainable returns. We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP's technology leadership."

Which pretty much is all she can say. HP has gone through a terrible time in recent years, undermined by an incompetent board of directors and its inability to find the right CEO.

It sure wasn't Apotheker, who was fired last summer for, honestly, a number of reasons, but mostly because under his watch shares of HP plummeted more than 50% in less than 10 months. Shareholders tend to look askance at such results.

So now Whitman is keeping expectations low, issuing Q2 guidance (profit of 88 cents to 91 cents) that is below analyst forecasts (95 cents) and talking about HP reasserting its technology leadership, an improvement from last month when Whitman was proclaiming that "HP intends to stay on top."

Wall Street so far has responded well to HP's results and Whitman's framing of same, with shares (NYSE: HPQ) in extended trading about 1% below Wednesday's closing price of 28.94.

But Whitman's not going to get through many more quarters on reassuring talk alone. Of HP's four major divisions (PCs, services, printers and enterprise), only services increased revenue from last year's Q1 (to $8.63 billion from $8.53 billion), and that was just by 1%. PC revenue ($8.87 billion) was down 15%, printer revenue ($6.26 billion) was down 7% and enterprise products ($5.0 billion) were down 10%.

That revenue trend has to change if Whitman wants to avoid meeting the same fate as Apotheker (though a $10 million severance deal no doubt cushions the blow).

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