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HP Follows Apple In Cutting Guidance Due To Coronavirus

The company is the second hardware maker to attribute reduced guidance to the outbreak, though HP is viewing the impacts as 'temporary.'

The financial impacts of the coronavirus epidemic are spreading in the hardware industry with HP Inc. lowering its earnings guidance for its current quarter.

Still, "we view the impact as temporary, with limited impact to our second half" from the coronavirus outbreak, HP CFO Steve Fieler said Monday during the company's quarterly call with analysts.

[Related: Coronavirus Crisis: The IT Industry Prepares For The Worst]

HP is the second major U.S. hardware company to cut its guidance as a result of the coronavirus, following Apple, analyst Toni Sacconaghi of Bernstein Research wrote in a note to investors. China is a manufacturing hub for many device makers including HP and Apple.

HP has factored in an 8-cent impact to its earnings per share guidance for its fiscal second quarter, which began this month and runs through the end of April. The company is expecting to see "a negative impact to our top line, bottom line and free cash flow” during its Q2, Fieler said.

Stock markets plunged on Monday, and then again today, amid concerns over the growing number of coronavirus cases outside of China. However, HP's stock has climbed following the company's announcement Monday of a $16 billion shareholder capital returns program and an improved 2020 outlook. The company's stock price was up 6.5 percent, to $23.52 a share, as of mid-afternoon Eastern Time on Tuesday.

Sacconaghi estimated the revenue impact for HP at between $500 million and $1 billion. This impact is "relatively unsurprising," given that HP is the "second-most exposed to China" within his firm's coverage, he said.

"Today, HPQ generates about ~7-9% of its sales from China, and more importantly, 50%+ of its revenues are assembled / manufactured in China, not including sub-assemblies / components also tied to the Chinese supply chain," Sacconaghi wrote.

HP is “actively working to return to full production as quickly as possible,” HP CEO Enrique Lores said during the Monday call with analysts. “We are working with our logistics providers to ensure we get the necessary capacity to meet customer demand.”

In response to a question from an analyst, Lores said that "our No. 1 problem is manufacturing capacity both for personal systems [and] for print hardware and supplies."

"We are working very aggressively with our manufacturing partners and suppliers. I personally have been in contact with most of the CEOs to accelerate the recovery," Lores said.

He added that the "biggest impact is driven by the supply chain impact--that of course will have an impact in sales all over the world.”

Fieler emphasized that it is a "dynamic situation," and that "our guidance just factors in the best information that we have today."

HP also may be able to recover some of the lost sales during the second half of the year, he said.

"I think the coronavirus may ultimately push out some of the Win 10 refresh timelines, given some of the constraints we're going to see in Q2. So that could support a better second half than we originally anticipated," Fieler said.

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