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HP Sinks On Lowered Outlook, Business Overhaul

August 19, 2011

A day after Hewlett-Packard announced it was planning to spin off the business and cut its outlook, shares in the company dropped more than 15 percent.

At least two brokerage firms downgraded HP’s stock, citing uncertainty and expenses that will that will accompany the transition the computer giant is facing.

“HPQ is undergoing a sound strategy transformation by focusing on high-growth, high-margin opportunities in the enterprise/commercial markets,” said Gleacher and Co., one of the firms downgrading HP’s stock value.

“However, we materially underestimated the magnitude and timing of this metamorphosis, i.e. IT service margin decline, challenged storage growth,” it noted.

HP stock was cut from $50 to $39 per share, but Gleacher and Co maintained HP’s “buy” rating.

HP’s TouchPad tablet computer, which has not seen favorable profits, was also dropped by the computer firm. HP said it will go forth with an acquisition of British software company Autonomy Corp to help give its cloud business more oomph.

HP has been struggling overall with its PC business, as a wide range of cooler gadgets have come onto the market in recent years, including Apple’s iPad and iPad2 tablets, which have dominated the market.

HP’s smaller rival, Dell, also lowered its revenue outlook earlier this week and has also been affected by slumping stocks. Both companies have been venturing out of their traditional markets looking into other services, but have so far not had the luck they had hoped for.

“Last night HP may have eroded what remained of Wall Street’s confidence in the company and its strategy,” said Needham & Co in a research note to its clients.

Brokerage Robert W. Baird said HP is no longer a “safe haven” stock and expects it to lose market share to Dell and others in the coming months.

HP’s decision to spin off the company could hurt other companies that rely, at least in part, on their products and services, such as Intel, the world’s largest supplier of microchips, said brokerage Nomura.

Shares HP were down more than 15 percent at $24.96 in heavy trading before the bell. They closed down more than 6 percent at $29.48 on Thursday on the New York Stock Exchange.

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