Gap Between Mac And Pc Sales The Smallest In 15 Years

Hewlett-Packard will report second quarter results today after the markets close for trading in New York, and the pressure is on CEO Meg Whitman to show she can keep the floundering tech giant on track toward a promised turnaround next year. At the outset it seems a tall order. Name a significant line of HP’s business and its probably in the middle of one sort of fundamental decline or another. Whether it’s the historical decline in PC sales, a weak environment for server sales, a lousy market for printers or ongoing difficulties with its enterprise services business, HP has troubles in all four. Together these troubled units accounted for about 92 percent of HP’s sales last quarter. Add to the mix a significant exposure to Europe, where the economy remains weak and it become incredibly difficult to feel hopeful for a pleasant surprise in HP’s results today. Whitman and CFO Cathie Lesjak have been clear in past public statements that there are no quick fixes for HP. And its rivals are taking advantage. Dell unleashed a bit of price war on the PC front cutting prices aggressively in order to take some market share ahead of its anticipated $24.4 billion go-private transaction. While Dell is willing to sacrifice profitability, HP doesn’t seem to have responded, and so may have missed some sales. As Chris Whitmore of Deutsche Bank Securities wrote in a note to clients yesterday “It appears HP is sacrificing share to protect near-term margins.” Dell has also been bragging about its ability to take market share away from HP on the server front. What’s HP got going for it: Aggressive cost management. Remember that HP surprised the street with better-than-expected cash flows in the first quarter of the year, giving the appearance that the promised turnaround had begun in earnest. But much of that surprise came from a one-time tax benefit that added a half billion dollars to operating cash flow. That unlikely this quarter, so Whitmore is worried that cash flow may come up short: “The combination of cash restructuring payments, headwinds from revenue declines in PCs impacting working capital and cash cycle and the absence of favorable factors in Q1 (tax deferrals, bonus payments, etc) may result in worse than expected cash flow,” he wrote. Analysts expect HP to report 81 cents per share on sales of $28.12 billion in sales. A miss on either the top or bottom lines will probably freak out shareholders impatient to see some tangible sign that despite having survived the worst year in its history, HP can yet be salvaged, and that Whitman is the one to get the job done. HP shares opened up slightly this morning at $21.21 a share. I talked about all this a little this morning on CNBC. The video is below.

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