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Hewlett Packard disappoints as old guard of tech shows more weakness

Aaron Pressman
HP HP CEO Meg Whitman HP on Wednesday … Continued The post When HP splits, employees will not be able to jump from one HP to the other appeared first on Business Insider.

Hewlett-Packard (HPQ) missed analysts sales forecasts for the second quarter in a row on Tuesday, making it the latest of the old guard tech stalwarts to disappoint Wall Street in 2015.

HP shares dropped 9% in early trading on Wednesday.

After surprising strength in PC sales last year bolstered HP, Intel (INTC) and others, this year has seen challenges from the strong dollar, Chinese resistance and the resurgent migration to mobile and cloud computing. First Intel, then Microsoft (MSFT), and now HP have disappointed investors with their first reports of the year. All three companies have tried to emphasize newer, faster growing businesses, but the results are still uncertain.

Hewlett Packard, Microsoft and Intel have seen their share prices slide this year after disappointing earnings reports.

HP posted revenue of $26.8 billion for its fiscal first quarter of 2015, the three months ending January 31. That was 2% less than Wall Street expected, according to FactSet. Adjusted earnings per share of 92 cents just beat analysts’ forecasts of 91 cents. But the  company also trimmed its full year adjusted earnings guidance by 30 cents a share to a range of $3.53 to $3.73. Analysts were forecasting $3.96 before the change.

CEO Meg Whitman told analysts the company simply can’t compensate for the dollar’s recent gains given that 65% of its sales come from overseas.

"We're working hard to offset these impacts through repricing and productivity, but let me be very clear: fully mitigating currency movements of this size would require reducing investments in areas like innovation, key systems and tools and placement of printer units,” Whitman told analysts. "That simply would not be the right thing to do."

Some investors were also surprised by the cost of Whitman’s plan to separate HP into two companies. HP will spend $1.3 billion this year and $500 million next year to cover consulting, legal, finance and other costs of the break up, CFO Catherine Lesjak noted.

But beneath the machinations, HP’s fundamental turnaround still looks like a work in progress, at best. Even setting aside the impact of foreign exchange movements, HP’s revenue still would have declined 2% (instead of the 5% drop that was reported). Revenue declined from the previous year in the printing and PC unit, servers and storage unit, enterprise services division and software.

Analysts had been expecting a slight drop in revenue for the year, but now forecast a 4.5% decline to $106.4 billion. Whitman & crew continue to maintain that revenue will be flat after adjusting for currency fluctuations. She’s banking on some of her new initiatives finally making up for the continuing shrinkage in older businesses, while the loss of big accounts should slow.

“The water is now going to stop draining out of the bathtub as fast as it has, so the water we pour in ought to lead to a rising level in the tub,” she told analysts.

So far, at least, investors remain focused on the drain.