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Hewlett Packard’s Spawn Get Off to a Slow Start

HP CEO Meg Whitman Visits ChinaHP CEO Meg Whitman Visits China
Meg Whitman, CEO of HP EnterprisePhotograph by ChinaFotoPress via Getty Images

Hewlett Packard’s final quarterly earnings as one big company highlighted a major reason why the tech titan decided to split into two: Its revenue keeps declining.

Fourth quarter sales dropped 9% year over year to $25.7 billion, the company said Tuesday. It marked the sixteenth time in the last 17 quarters that revenue declined.

Earlier this month, Hewlett Packard took the major step of breaking up into two separate companies as part of plan to reverse the slide. Executives argued that getting smaller would help make the newly independent businesses more efficient and nimble.

One company, HP Inc., is focused on making printers and personal computers. The other, Hewlett Packard Enterprise, makes data center equipment, software and provides consulting services.

Alas, early signs show that a fast turnaround is unlikely. In addition to talking about earnings for the combined company, both Hewlett Packard Enterprise CEO Meg Whitman and HP, Inc. CEO Dion Weisler detailed financial forecasts for their respective companies.

Both turned out to be below what analysts had expected.

Hewlett Packard Enterprise, or HPE, expects a profit of 37 cents to 41 cents per share for the current quarter compared with the 43 cents that analysts had predicted. HP, Inc. expects 33 cents to 38 cents per share in profit for the same period versus analysts expectations of 42 cents.

During a call with analysts, executives blamed the shortfall on unfavorable foreign currency exchange rates and a tough market for technology products. However, Microsoft and Amazon, which is building an enterprise business around cloud computing, don’t seem to be facing similar problems.

Of the two former HP companies, things seemed a bit more hopeful for HPE. Whitman, for example, noted that big Internet service providers are buying a huge number of servers. In fact, server sales accounted for 48% of HPE’s data center business in the last quarter. That business unit rose 2% year over year to $7.4 billion in that period.

HPE will also rely on a new partnership with Microsoft to help lift sales, Whitman explained. The two companies recently teamed up on a deal in which HPE will provide consulting services and software for businesses that use Windows 10. Additionally, HPE has signed on as a Microsoft “preferred public cloud partner,” although Whitman didn’t give many details. Last month, HPE abandoned its business of providing public cloud services to customers and the Microsoft deal may be a substitute.

Weisler painted a far-less rosy picture for HP, Inc. He acknowledged that it was “indeed a difficult quarter and somewhat weaker than we expected.”

To compete better compete with rivals, HP, Inc. slashed the price of some of its higher-end printers that are mostly used by businesses. But regular consumers jumped on the deal, which ended up hurting HP, Inc. The company typically makes money in its printer business by selling ink. However, regular consumers don’t print as much as corporate customers and therefore use less ink.

As a result, HP, Inc. said it will will be reorganize its sales and marketing strategy to avoid a similar mess in the future.

In terms of acquisitions, Weisler noted that the HP, Inc. is looking to buy—within reason. One possibility is 3D printing, an area in which the company is making a push. It plans to have a printer on the market by early 2017. An acquisition might speed things up.

Wiesler acknowledged that 3D printing and related materials is an area of interest. But he added that the company won’t be doing “consolidation for consolidation sake.”

Some high-profile 3D printing companies like Stratasys and 3D Systems have been struggling as of late. Whether that makes them more or less attractive as acquisition targets is unclear.

HPE shares (HPE) rose 2% in after-hours trading to $13.96. HP, Inc. shares (HPQ) fell 7.5% at $13.55.

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