Investors bemoan HP's flat sales

Investors bemoan HP's flat sales

Can Carly Fiorina deliver on her promises?

An apparently unexciting set of results from Hewlett-Packard has prompted a plunge in the firm's share price, and even speculation that last year's merger with Compaq was a failure.

After releasing flat sales figures after the markets closed on Tuesday, HP saw its shares fall by 13% during early trading on Wednesday.

Although revenue was down only 1% during the three months to end-January, the company missed its own estimates - a failing that markets tend to take seriously.

Some analysts are already questioning whether the blame should be placed on the merger with Compaq, which was pushed through despite opposition from many HP shareholders last May.

Although the two firms have managed to cut their combined costs, the sales figures are the first proof that they have not yet managed to grow their business - the aim that drove the merger in the first place.

Uneasy PC

The concern of many observers - highlighted by dissident HP shareholders a year ago - is that Compaq brought a barely profitable personal computer business into the marriage.

HP's PC division reported an operating profit of $33m during the quarter, but the feat was achieved largely by shifting some costs into other units.

The firm's PC performance has been hit hard by a price war launched by market leader Dell, whose manufacturing techniques allow it to underprice many large rivals.

HP's profitable businesses - notably digital imaging and printing, as well as large server computers - are being tarnished by PC underperformance, analysts claim.

What synergies?

What has most concerned investors in the latest results is the shallowness of the "synergies" produced from the merger so far.

HP's personal computers are dragging it down

The company has saved money - merger-related savings were almost $750m during the three months, almost double the previous quarter and well ahead of budget.

But in persuading shareholders of the wisdom of the merger, HP chief executive Carly Fiorina stressed that it would also produce a company greater than the sum of its two parts.

This has not yet happened, and the fact that the company missed its own estimates has particularly undermined confidence.

The company's shares have risen and fallen, but made no significant progress since the agreement of the merger on 3 May last year.