WEBVTT - Bloomberg's Srinivasan on HP: Printing Dragging Down EPS(Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>this is a Bloomberg Business Flash Broom, Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. Moments ago we heard from HP in

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<v Speaker 1>kit reported third quarter profit the top to analysts estimates

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<v Speaker 1>help by improving demand for laptops, but shares our trading lower.

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<v Speaker 1>It says profit excluding some items will be thirty four

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<v Speaker 1>to thirty seven cents a share in the current quarter.

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<v Speaker 1>Now that would fall short of analyst projections of forty cents.

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<v Speaker 1>A sell off in drugmakers dragged US stocks lawer today.

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<v Speaker 1>The SMP five hundred index down eleven to seventy five,

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<v Speaker 1>a drop of five tenths upon percent down, Industrials down

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<v Speaker 1>sixty five points to drop of four tenths of one percent,

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<v Speaker 1>and has stack down forty two, a drop of eight

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<v Speaker 1>tents of one percent. The tenure down three thirty seconds,

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<v Speaker 1>the yield one point five six percent, Gold down eighteen

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<v Speaker 1>ten the ounce the thirteen one four, a drop there

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<v Speaker 1>of one point four percent. West Texas Intermediate crewed down

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<v Speaker 1>a dollar thirty at a barrel at fourty six seventy one,

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<v Speaker 1>a drop there of two point nine percent. So again recapping,

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<v Speaker 1>we did see a down dave for stocks SMP five

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<v Speaker 1>hundred index falling eleven, a drop there of five tenths

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<v Speaker 1>of one percent. I'm Charlie Pellett. That's a Bloomberg business flash.

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<v Speaker 1>You're listening to taking stock with bin box at Kathleen

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<v Speaker 1>Hayes on Bloomberg Radio. Shares of HP are lower by

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<v Speaker 1>more than five and a half per cent right now

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<v Speaker 1>after reporting a third quarter results that were better than

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<v Speaker 1>analysts estimates. But looking into the fourth quarter, HP says

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<v Speaker 1>that earnings per share from continuing operations will be between

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<v Speaker 1>thirty four and thirty seven cents versus estimates of between

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<v Speaker 1>the thirty eight and forty four cents. Here to tell

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<v Speaker 1>us more is on En trinivasan On a is an

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<v Speaker 1>expert when it comes to the semiconductor and hardware business.

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<v Speaker 1>He's an analyst for Bloomberg Intelligence and Heat joins me

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<v Speaker 1>now on tell us about HPS results and also their

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<v Speaker 1>future guidance. The future guidance is the number one driver

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<v Speaker 1>of why perhaps the stock is down and it's printing.

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<v Speaker 1>The printing business of HPING continues to be very, very weak.

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<v Speaker 1>If you look at Q three numbers, it was down

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<v Speaker 1>fourteen percent year on year, even with currency it was

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<v Speaker 1>down ten percent. UM. It's got a very strong operating

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<v Speaker 1>margin relative of the PC business. But if you look

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<v Speaker 1>at the hardware side of the printers, I was down

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<v Speaker 1>ten percent, commercial side was down, consumer sides were down,

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<v Speaker 1>supplies were down, and and we're not seeing a substantial

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<v Speaker 1>improvement in that side of the house. So Personal Systems

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<v Speaker 1>was okay, I mean it was flat here on her

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<v Speaker 1>up in constant currency, um and um. You're starting to

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<v Speaker 1>see some potential stabilization there, but printing continues to be

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<v Speaker 1>a drag on the business. And fourth quarter guidance is weak,

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<v Speaker 1>and they're doing some restructuring and continued restructuring, my dad,

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<v Speaker 1>but you want to see some potential light at the

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<v Speaker 1>end of the chunnel, this quarter was not it. Well,

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<v Speaker 1>you're you're right about the continuing cost cuts because according

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<v Speaker 1>to the company's chief executive Dion Weisler Uh, they expect

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<v Speaker 1>to reduce costs by over a billion dollars. I mean,

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<v Speaker 1>cost gusts do not revenue. You can't make your revenue expand.

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<v Speaker 1>And in one of the things that we want to

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<v Speaker 1>see is yes, the operating margin improvement of the castle

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<v Speaker 1>improvements are are good, particularly their structural cost reductions, and

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<v Speaker 1>those are those are great things. But one of the

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<v Speaker 1>things that we do want to see from the analyst

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<v Speaker 1>community is the slowdown in the rate of decline of

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<v Speaker 1>both PCs and printing and potential for improvement. And and

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<v Speaker 1>we don't see that in the current quarter or the guidance.

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<v Speaker 1>When the chief executive says that they are trying to

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<v Speaker 1>invest in higher end products in order to increase their profitability,

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<v Speaker 1>what kind of higher end products are they talking about.

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<v Speaker 1>So in the PC segments that could involve m gaming

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<v Speaker 1>PCs or two in one laptops, laptops and tablets that

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<v Speaker 1>are detachables for example UM and in the printing business

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<v Speaker 1>it is more um A three printers the equivalent of

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<v Speaker 1>the office printers that you have relatively one per floor

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<v Speaker 1>if you made the big ones that are typically made

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<v Speaker 1>by Cannon and xerox UM. And the reason why those

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<v Speaker 1>are UH an attractive market is because they are high priced,

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<v Speaker 1>their high margin, and the supply UM agreement that you

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<v Speaker 1>have for those printers is also very attractive. So for

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<v Speaker 1>all those reasons, those segments are attractive, but I mean

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<v Speaker 1>they're there. These are relatively small segments, and there would

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<v Speaker 1>entrenched competition in place or entrenched leaders in place. So

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<v Speaker 1>uh HP has got a little ways to go in

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<v Speaker 1>order to move its own revenue leadle from those segments. Well, indeed,

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<v Speaker 1>just taking a look at the printer net revenue, as

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<v Speaker 1>you said earlier, down four personal systems UH net revenue,

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<v Speaker 1>there was flat commercial net revenue down three percent, but

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<v Speaker 1>the consumer business the revenue was up eight percent. What

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<v Speaker 1>is HP doing in order to move that particular metric higher.

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<v Speaker 1>So one of the things that we've seen last quarter

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<v Speaker 1>from the market research from you did see um um

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<v Speaker 1>us PCs grow for the first time in several years.

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<v Speaker 1>So HP is very strong in UM in the market UM.

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<v Speaker 1>So that definitely eight This particular seven second is HB

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<v Speaker 1>has said that it's walking away from less profitable PC

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<v Speaker 1>areas where it's not trying to maintain share for the

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<v Speaker 1>sake of it and it wants profitable share UM and

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<v Speaker 1>to that those two factors put together, UM likely impacted

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<v Speaker 1>that eight percent consumer growth on a year on year basis,

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<v Speaker 1>and even the commercial net revenue decreased. That's a reasonable number.

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<v Speaker 1>One PCs are actually defining substantially more than that forward

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<v Speaker 1>to seven percent, if you go back one to three quarters.

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<v Speaker 1>And then when it comes to the stock market, it's

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<v Speaker 1>all about how much something could be worth. And currently

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<v Speaker 1>the market cap of HP is twenty four and a

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<v Speaker 1>half billion dollars, but the company has more than five

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<v Speaker 1>and a half billion dollars in gross cash Is that

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<v Speaker 1>attractive to investors? It is, and in the cash flow profile,

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<v Speaker 1>particularly with the cost cuts um are all attractive. But

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<v Speaker 1>at the end of the day, if you look at

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<v Speaker 1>the the technology media telecom space is filled with a

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<v Speaker 1>lot of these companies that are legacy A companies. You

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<v Speaker 1>have a bank, you have c s C. You have

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<v Speaker 1>a lot of these sorts of companies that are slow growth,

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<v Speaker 1>relatively profitable, and they're in permanent restructuring more from a

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<v Speaker 1>cost containment perspective. But you know, after a little while,

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<v Speaker 1>people gravitator tech for sales and earning growth and you

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<v Speaker 1>have to demonstrate continuity there on trini us. And thank

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<v Speaker 1>you very much, senior semiconductor hardware analyst for Bloomberg Intelligence.

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<v Speaker 1>Thanks for listening to Taking Stock. I'm pim Fox. This

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<v Speaker 1>is Bloomberg coming up Bloomberg Law is going to be

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