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Last Updated: Thursday, 12 August, 2004, 15:44 GMT 16:44 UK
HP shares tumble on profit news
Hewlett Packard is based in Palo Alto, California

Shares in Hewlett-Packard have fallen sharply after the computer manufacturer revealed third-quarter profits well short of market expectations.

Even though earnings were almost double last year's, the shortfall on forecasts meant shares fell 15%.

HP's performance was affected by problems at its servers and storage unit, where sales fell and losses grew.

HP said that profits for fourth quarter were expected to fall short of expectations as well.

Management changes

HP is the latest in a series of leading technology companies to produce disappointing earnings figures.

Operating losses at the server and storage unit ballooned to $208m (114m) from $20m in the previous quarter. Sales dropped 5% to $3.4bn (1.8bn).

HP is to make management changes at the unit, which provides especially powerful computers for large businesses and organisations, to arrest the decline.

Carly Fiorina, HP's chief executive, blamed the unit's poor performance on the absence of a traditional uplift at the end of the quarter and disruption caused by a new supply chain system.

"These solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage," she said. "We are therefore making immediate management changes."

Carly Fiorina said she expected the division to return to profit in the fourth quarter.

Despite almost doubling year-on-year profits to $586m, HP failed to meet analyst targets for earnings per share.

It generated earnings of 24 cents a share over the quarter, against market expectations of 31 cents a share.

Market concern

In addition, HP said it expected fourth quarter earnings to fall somewhere between 35 and 39 cents per share.

Analysts were looking for a minimum return of 41 cents a share.

HP surprised the market by announcing its third quarter figures a week earlier than expected.

Sales of PCs were healthy over the quarter with revenues from HP's PC division up 19% to $5.9bn(3.2bn).

HP's other leading divisions - personal systems, services, software and imaging - all performed strongly. Group revenues increased 8% to $18.8bn (10.3bn).

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