Seven Points To Ponder From HP's Q1 Earnings

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HP had plenty of positives to talk about in its fiscal first quarter, but unexpected weakness in its consumer PC and services businesses caused analysts to pepper CEO Leo Apotheker and CFO Cathie Lesjak with pointed questions. While the executives tackled the key issues, some questions weren't fully addressed, and following are seven intriguing subtexts that arose during the event.

1. Little Crowing Over HP's Switching and Routing Growth

Earlier this month when Cisco reported quarterly sales declines in switching and routers, HP saw it as evidence that the dual vendor strategy was taking hold in the networking space. But after HP reported blade server revenue growth of 23 percent and switching and router growth of 30 percent in Q1, HP CFO Cathie Lesjak said only that this is "a good proof point" that networking is contributing to HP's growth.

CEO Leo Apotheker characterized HP's networking gains in similarly muted terms. "Our networking business continues to be an exciting opportunity. It's a big market. It has good margins and we expect to continue gaining share," Apotheker said during the earnings call.

Perhaps HP's weak consumer PC sales, sluggish services business and gimpy Q2 and full-year outlook put a crimp on any euphoria its networking gains might have generated. But HP could have seized an opportunity there to talk about the impact of its Catalyst For Change promotion, in which VARs receive up-front savings for swapping out Cisco networking gear for HP networking gear.

2. Apotheker Fields Baseball-Themed Question During Q&A

Apotheker, who only moved to California last October, could be forgiven for not being up to speed on baseball terminology. But when analyst Katy Huberty of Morgan Stanley asked Apotheker "what inning do you think we're in?" with regard to the commercial PC refresh cycle, Apotheker showed an impressive knowledge of the strike zone.

"We actually see a rather dynamic market. I would say that we are in the mid-innings, to use the American expression," Apotheker responded. It was the tech industry equivalent of fouling off a Tim Lincecum changeup in one's first at-bat.

3. Another Death Knell For Netbooks?

Lesjak attributed the softness in HP's consumer PC business, which saw a yearly revenue decline of 12 percent, to weak demand for netbooks, consumer desktops in the U.S. and notebooks in China. This will no doubt give fodder to those who believe Apple's iPad is doing its best termite impression on the overall consumer PC market.

What's especially interesting is that Apotheker didn't mention netbooks when laying out HP's plan to make its PC portfolio more attractive. "We look forward to providing a differentiated seamless experience across our tablets, smartphones, printers, PC’s and future phones," Apotheker said in the call.

As far as netbooks are concerned, one can almost hear the drums pounding as the iPad and other tablet cannibals move in for the final ceremonial devouring of the once-booming category. Microsoft acknowledged the impact tablets are having on netbooks in the software giant's earnings call last month, and HP's results are certain to stoke this line of speculation.


Next: Apotheker's Views On HP's Cloud Moves

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