Hewlett Packard, Shares Down 30%, Local Profits Down 71% As They Battle Lenovo, Acer & Dell
Hewlett Packard is Australia’s #1 PC Company but according to Microsoft’s Windows activation data their attachment rate is slowing in Australia.
The US Companies global stock has tumbled roughly 30% over the past two months, and their PC share up against Lenovo and Dell has also fallen.
In Australia the US Company reported a 70% fall in profits for the period ending June 30 2019, what has not been explained is why the Australian PC Company trades as Tower Software Engineering, a Company that is listed as the legal entity for HP PPS Australia.
ChannelNews understands that the local subsidiary is currently struggling to get stock despite the COVID-19 crisis sparking robust demand for PCs as more people work and study from home.
The legal entity for the HP PC Company in Australia as Tower Software Engineering is described as ‘An Australian Importer’ online.
This entity is ultimately owned by HP Inc who have not explained why they use this entity Vs HP PPS in the Australian market.
During the last financial year Hewlett Packard sales across PC’s and Printers increased 3.7% to A$1.69 Billion however profits fell over 70% to $36 Million due in part to heavy discounting, supply issues and large rebates to retailers.
Investigations of HP accounts reveals that their global cash pool is managed through Roger Holding BV, which is based in the Netherlands a tax haven.
DTA (deferred tax assets) dropped by $53m, which appears to be a more conservative treatment towards future tax benefits (less benefits, more likely payments).
The local operation was initially impacted by an ongoing chip shortage at Intel and the disruption of supply chains in China that throttled the global production of PCs, and an abrupt COVID-19 spike in demand exacerbated the shortage.
These issues affected all PC Companies operating in Australia.
As a result, global PC shipments actually fell 8% annually in the first quarter 2020 according to Canalys, marking the industry’s worst first quarter since 2016.
Analysts claim this is particularly bad news for HP which had been counting on a turnaround in the PC market to offset its other woes which has resulted in massive global layoffs of staff and a failed takeover of the Company by Xerox.
HP’s 30% stock fall was because analysts have festering concerns about the company’s PC and printing businesses.
A big problem for the Company is that their printing revenue declined as customers postponed upgrades.
Canalys estimates HP’s shipments declined 14% annually to 11.7 million as its market share dropped from 23.3% to 21.8% — putting it in second place between Lenovo and Dell.
However, Lenovo and Dell both grew their market shares as HP’s declined.
Lenovo’s shipments dipped only 4% to 12.8 million, and its market share rose from 23% to 23.9%. Dell’s shipments rose 1% to 10.5 million, and its market share expanded from 17.8% to 19.6%.
HP’s rivals Acer, who reported a 6.7% increase in profits in Australia recently on lower revenues Lenovo and Dell are not struggling as much as HP with the local subsidiary set to face hurdles as the economy shrinks due to COVID-19.
Analysts such as Motley Fool claim that Xerox’s takeover bid likely distracted HP over the past few months, and CEO Enrique Lores — the former printing unit chief, who succeeded CEO Dion Weisler in late 2019 — might be struggling to keep pace with Lenovo, Dell, and Acer in the crowded PC market.
In the USA and Canada Acer has achieved 105% sales growth in the last quarter with their high sales of their Chromebooks and gaming PC’s.
Motley Fool wrote recently that HP might merely be off to a rough start in 2020, but we should recall that former CEO Dion Weisler — who led the company after its split with Hewlett-Packard Enterprise in 2015 — previously led the personal systems business.
Under Weisler, HP pivoted away from low-end devices and produced pricier but more appealing devices like its Spectre and Omen laptops. Lores, who seems more interested in cutting costs and repurchasing shares, hasn’t presented a clear roadmap for the future of HP’s PC business yet with some speculating that the Company is desperate to be seen as a maker of premium notebooks up against a surging Microsoft who have stripped share from all players with their Surface devices.
Canalys analyst Ishan Dutt warned “the spike in PC demand seen in Q1 is not likely to be sustained” and the “rest of the year looks less positive.” Dutt also expects to see a “significant downturn in demand” in the second quarter.
Canalys’ first-quarter numbers don’t look good for HP, but investors shouldn’t jump to conclusions yet.
HP’s shipments might have accelerated in recent weeks after China eased its lockdown measures, and its fiscal second-quarter numbers might look better than Canalys’ estimates. Nonetheless, investors should still consider this report to be another red flag for HP, which could face significant challenges as the global recession deepens, they wrote.