A funny thing happened on the way to tech giant Hewlett-Packard’s (HPQ) fiscal 3rd quarter 2011 earnings report, which was supposed to have come out after the closing bell Thursday. When reports leaked that H-P was planning to spin-off its PC business and was seeking to purchase British-based software firm Autonomy for $10 billion, this forced the company to report earlier than expected.
Confirmed by Hewlett-Packard was that it is indeed spinning off its entire PC business — on both the Consumer and Enterprise sides. This marks a ground-shifting reversal for the company, which in 2002 became the biggest player in the PC market with its purchase of Compaq. H-P also said it will be doing away with its webOS business.
Oh, and by the way, H-P posted adjusted earnings of $1.10 per share on revenues of $31.2 billion in the quarter, beating the Zacks Consensus Estimates of $1.09 and $31.1 billion, respectively. H-P also lowered its full-year revenue guidance from $129-130 billion down to $127.2-127.6 billion.
In another bloody day of regular trading, HPQ shares tumbles roughly 6%. After hours, the sell-off continues — the shares are down another 2.4% as of the writing of this article.
CEO Leo Apotheker appears to be focused on increasing profit margins by both selling off the company’s PC unit and its pursuit of Autonomy, which specializes in Enterprise-side information management software. While profit margins in the PC business remain in the mid-single digits, H-P’s Enterprise business sees 15% profit margins. The company expects the spin-off will take place within the next 12-18 months.
Very few analyst estimate revisions had been taking place during the course of the quarter, but with the company lowering guidance for fiscal year 2011, we expect analysts covering H-P will be much busier over the next few days. Among their concerns will be how shedding the PC business — which accounts for roughly one-third of H-P’s business overall — will affect the company’s numbers in the near term.
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