The Implications of HP’s Disappointing Earnings Announcement
Hewlett-Packard may have just missed its expected earnings for Q1 2011 by a hair, but the shortfall was enough to send Wall Street into crisis mode and trigger a sell-off of HP stock.
HP reported revenue for the fiscal quarter ending Jan. 31 totaled $32.3 billion, just shy of Wall Street estimates of $32.96 billion. Net income for the same period was $2.6 billion, up from $2.3 billion the year prior.
HP was the second company in as many weeks to post less-than-stellar earnings, adding fuel to an already smoldering fire of unease about the technology sector. Cisco Systems reported better-than-expected revenues for its first quarter 2011 but its net income was down 11 percent year to year, disappointing Wall Street and sending its stock to a near 52-week low.
Although both companies were pretty much on par with or above their revenue estimates, both revised their outlook for the coming quarters, which is what made Wall Street wring its collective hands in worry. Cisco in November 2010 predicted only 9 percent to 12 percent growth for fiscal year 2011, which is significantly less than the 13 percent analysts had expected. The concern then was Cisco was losing market share to its competitors. But now that HP has revised its estimates for the second quarter – revenue of $31.4 billion to $31.6 billion, less than the $32.6 billion expected by Wall Street – some wonder if a pall has been cast on the technology sector in general.
Of course, there are always exceptions to the rule. Both Apple and Google reported impressive earnings and crushed Wall Street expectations. But when Cisco and HP, long bellwethers in the technology market, fail to impress, it’s a sign of things to come. Whether that means a a larger piece of the networking pie for upstart vendors such as Juniper Networks (which reported a 26 percent increase in its fourth-quarter 2010 earnings) is anyone’s guess right now. But it’s a safe bet that everyone in the sector will be watching very closely.