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After the market closed on Wednesday, May 23rd, Hewlett-Packard (HPQ Free Hewlett-Packard Stock Report), the world's largest technology company and a Dow-30 component, reported a 24% decline in April-period earnings per share and launched a multiyear restructuring initiative that includes a significant workforce reduction. The stock had been down more than 4% during the day and closed 3% lower prior to the announcement, but advanced about 5% Thursday morning, as investors applauded management's efforts to turn the giant computing company around.

Hewlett-Packard earned $0.80 a share in its fiscal 2012 second quarter, below the $1.05 a share logged in the year-earlier period, but better than our estimate and the company's previous guidance of $0.68. (Fiscal 2012 ends on October 31st.) Reported results included $0.18 of acquisitions, restructuring, and intangibles expenses, compared with $0.19 in the comparable period of fiscal 2011. Revenues slipped 3% in the term.

H-P's largest unit, its personal systems group, reported flat sales, with growth in desktop computers (up 5%) offset by slight declines in notebook computers and workstations. The business has been hurt by the shift in consumer computing toward mobile devices, like smartphones and tablet computers, and away from personal computers. An uptick in sales to companies offset weakness in consumer sales and margins held steady, aided by a lessening of the negative impact of the hard disk drive shortages experienced earlier in the year.

Services, the company's next-largest business, had flat sales and the unit's operating margin remained within management's target range of 10%-12%. Imaging and printing sales fell 10%, reflecting weak demand in both the commercial and consumer markets, but channel inventories improved. The enterprise servers, storage systems, and networking products group reported a 6% sales decline, with most of the weakness in business critical systems (down 23%). Software revenues rose 22%, but software license sales by the Autonomy business, acquired last fall, were very disappointing. New management has been installed to improve Autonomy's performance.

Meanwhile, H-P outlined plans for a multiyear restructuring program, including a workforce reduction of about 27,000 employees, or 8% of its current workforce, by the end of fiscal 2014. The program is expected to reduce expenses by $3.0 billion-$3.5 billion over that span. It plans to use the savings to expand its offerings in new areas (like cloud computing), improve service capabilities, and shift the services mix to higher-growth offerings.

Management expects to record pretax charges related to the restructuring of $1.7 billion in fiscal 2012 ($1.0 billion in the July interim) and another $1.8 billion during fiscal 2013 and fiscal 2014. In addition, as part of a change in the personal computer branding strategy, H-P has begun an analysis to determine the current value of the Compaq name, and will take a related charge of up to $1.2 billion in the July quarter.

Including these items, the company now looks for July-period results to come in between breakeven and earnings of $0.03 a share, and expects full fiscal 2012 reported share results of $2.25-$2.30, including the negative effect of $1.80 a share in restructuring and other so-called nonoperating expenses. We have lowered our share-net estimate for fiscal 2012 from $3.20 to $2.25, and reduced our fiscal 2013 forecast from $3.75 to $3.25.

In all, H-P still faces weak demand both in the United States and in Europe. Turning the computer giant around will take time, and progress may be uneven. Although the company appears to be addressing its problems aggressively, we recommend that only very patient investors consider the stock at this time.

About The Company:Hewlett-Packard provides computing and imaging solutions and services to consumers and businesses. The company operates in six segments: Imaging & Printing (20% of 2011 revenues), Personal Systems, (30%), Enterprise Storage & Servers (17%), Services, (27%), Financing (3%), and Software, (3%). Research and development costs amounted to 2.6% of 2011 revenues.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.