HP to scale back channel inventory as slowdown bites

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HP to scale back channel inventory as slowdown bites

Hewlett-Packard plans to scale back channel inventory for the coming months particularly throughout the imaging and printing supply chain after being caught out by slowing demand in the fiscal first quarter.

In the three months to 31 January 2009, HP grew revenues 1% or 4% in local currency to $28.8bn but profits fell 13% to $1.9bn. The Services division was the shining star as all hardware and software groups saw sales decline.

"In the first quarter HP executed well in a challenging market," said Mark Hurd, CEO at the US giant who added. "We are particularly pleased with the results of the services segment."

Revenues from the Personal Systems Group and Imaging and Printing Group drop 19% and 30% to $8.8bn and $435m respectively, while Enterprise Server and Storage sales went down 18% to $3.9bn and Software dipped 7% to $878m.

In stark contrast the Services division climbed 116% to $8.7bn, primarily due to the acquisition of EDS, the integration of which is ahead of schedule, and contributed an operating profit of $1.1bn, up from $499m a year earlier.

"We saw pressure on our hardware business due to the slowing global economy," admitted Hurd.

During the quarter, HP said it was a little slow to get inventory in line with market demand and was running at half a week over for PSG, a week over for ESS and one and a half weeks over for IPG.

HP expects revenues to decline 2% to 3% in the fiscal second quarter compared to a year ago and the company warned to it was "working to bring down our own and channel inventory" which was of concern in the ESS and IPG markets.

"The revenues guidance that we have given is because we don't see the economy getting better," said Hurd, "I hope it is better in Q2 than we are modelling but we have decided to be prudent and lean out the channel."

Revenues grew in the Americas 11% to $12.4bn, sales in EMEA and Asia Pacific declined 3% and 11% to $12bn and $4.4bn respectively.

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