Sluggish PC, printer ink sales hurt HP

       Hewlett-Packard Cos 19% drop in quarterly profit shows that the company still relies heavily on printer ink and the troubled personal computer market, despite the aggressive transformation its undertaking to branch out and encroach more on rival IBM Corps turf.
       IBM, which ditched its PC division as part of a major facelift over the past 15 years, now makes most of its money from software and services. With its $13.9 billion acquisition last year of technology services company Electronic Data Systems, HP now too is heavily invested in services they are its biggest revenue and profit generator.
       But HPs latest quarterly numbers,reported on Tuesday after the market closed, show the companies are still very different.
       HPs profit dropped in large part due to ongoing weakness in sales of PCs and printer ink two areas IBM isnt in.Still, HP edged past Wall Streets profit and sales forecasts something CEO Mark Hurd has done most quarters in his 412years at HPs helm.Expectations were high going into Tuesdays report: HPs stock has risen 75% since March. Although the results edged out analysts estimates, investors sent shares down 96 cents, or 2.2%, to $43 in extended trading. The stock closed Tuesdays regular session up 85 cents,or 2%, at $43.96.
       The numbers were good and the guidance is a relief, said Jayson Noland,an analyst with Robert W. Baird & Co Their commentary though is what I would focus on: conditions are stabilising,and some of the cyclical businesses should show a rebound next year.
       But HP offered no big surprises, ho hum, he added.I dont expect the stock to do much one way or the other.(The stock) has been very strong.
       Ink has long been HPs cash cow, but is coming under pressure from generic,cheaper brands. HPs revenue from printing supplies, which includes ink, was down 13% in the three months ended July 31.
       HPs PC division posted an 18% sales decline, despite improvement in consumer spending, strength in China, and a 2% increase in unit shipments.
       The discrepancy is explained by the fact that PC makers have been slashing prices, a trend that has also hurt HPs rivals.
       HP has been reluctant to call a bottom in the PC market, as chip maker Intel Corp did in April one of the first bullish signs about a turnaround in that sector.
       Were encouraged I think by the stability that were beginning to see in the market, but were not yet at a point where were ready to call it a turn,Hurd said on a conference call with analysts Tuesday evening.
       Cathie Lesjak, HPs chief financial officer, said in an interview that PC demand appears to have stabilised.
       She said the decline in printing supplies revenue was mostly caused by currency fluctuations and changes in the way HP manages inventory at resellers.
       HPs printer division makes up 21%of its overall revenue. The PC division makes up 31%.
       In the latest quarter, HP earned $1.64 billion, or 67 cents per share, compared with $2.03 billion, or 80 cents per share,a year earlier.
       Excluding one-time items, HP earned 91 cents per share, a penny better than the average estimate of analysts polled by Thomson Reuters.
       Sales fell 2% to $27.45 billion, slightly ahead of analysts projections for $27.26 billion. Sales would have risen 4% were it not for currency fluctuations.
       The combined HP-EDS had $8.47 billion in services revenue in the latest quarter. Its hard to compare that to last year, though, because the numbers HP has released dont compare directly yearto-year.
       HP says thats because EDS wasnt a part of HP at this time last year, and the companies are still being integrated.