HP shares fall on concerns about sales, inventory

Source: Reuters

Date :11/25/2008 5:18:00 PM

Shares of Hewlett-Packard Co fell more than 7 percent on Tuesday on concerns about weak sales of printer ink and personal computers, fed in part by pessimistic quarterly earnings from one of the company's distributors.

HP, a Dow Jones industrial average component, was down far more than the index which dropped 0.4 percent.

In its fiscal fourth-quarter earnings release on Monday, HP reported a 9 percent increase for printer supplies year-over-year, and an 8 percent drop in printer hardware shipments.

HP said its market share would be sustained because slower printer sales have affected the entire industry, and that sales of ink and printer supplies would remain brisk.

Analysts had trouble accepting that explanation.

"We question the sustainability of supplies strength given the contracting install base within a dramatically weaker IT spending environment," said Chris Whitmore of Deutsche Bank in a research note to clients.

Bank of America's Scott Craig said bluntly: "Unit growth was disappointing at down 8 percent, driven by lower consumer and commercial unit results."

HP increased revenues by $800 million over the quarter by putting an additional week's inventory of personal computers into distribution.

Whitmore worried that such a backlog might have adverse consequences if demand fell.

Those concerns were fed by the results of a major distributor of HP, Tech Data . The distributor discontinued its forecast, saying the economic climate and volatility of some foreign currencies made it "not ... prudent to continue providing net sales or tax rate guidance."

The market seemed to ignore the positive views of Ben Reitzes of Barclays Capital, who said in his note: "HP stated it is reasonably comfortable with its channel inventory position."

Shares of the Palo Alto, California-based company fell $2.57 to $33.13 on the New York Stock Exchange early Tuesday afternoon.

(Reporting by David Lawsky, editing by Richard Chang)

SAN FRANCISCO (Reuters)