HP, Dell feel earnings sting from iPad domination

9:40 PM, Aug 22, 2012   |    comments
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SAN FRANCISCO - Hewlett-Packard on Wednesday reported sliding sales and profits in its most recent quarter as consumers continued to flock to tablet computers in a mobile revolution led by Apple.

The computer behemoth delivered an $8.9 billion loss in its fiscal third quarter as the result of an $8 billion write-down for its acquisition of consulting services firm Electronic Data Systems in 2008. Revenue slipped 5% to $29.7 billion from a year ago, and net income slid 14% to $2 billion.

"The PC market remains weak" and computers aren't selling, as shoppers wait for new product releases, CEO Meg Whitman said on a call with investors. "Our PC revenue was down 10% year-over-year driven by this weakness and aggressive pricing from our competitors. The reality is we are locked in serious competitive battles."

HP is in the process of a massive turnaround effort. But the computing giant's earnings report bears similarities to that of rival Dell, which on Tuesday warned that its next quarter would come up short on sales. Shares of HP, which closed Wednesday at $19.20, fell 4% in after-hours trading. Dell closed down 5% at $11.68.

The pains of the nation's leading computer sellers underscore a sea change in consumer preferences for tablets - particularly Apple's iPad - that has turned the traditional PC industry upside down. "As the tablet category matures, it's becoming clear that cannibalization (of PC sales) is real," says Forrester analyst Sarah Rotman Epps. "That's a huge problem for Dell and HP."

Last month, HP's U.S. share of the PC market - desktops and laptops - slipped 12.7% to 4 million units and Dell's slid 9.5% to 3.5 million, according to researcher Gartner. Meanwhile, Apple gained 4.3% to 1.9 million units from a year ago.

HP, Dell, Lenovo and Intel made a huge push toward so-called ultrabooks in a bid to woo buyers with leaner laptops - but so far haven't seen a huge bump in sales. A survey of 5,000 U.S. consumers by Forrester found that 13% of recent tablet buyers considered a laptop but didn't buy one. Worse, 14% said they won't buy one in the future.

HP is also trying to get back on track after former CEO Leo Apotheker tried to spin off the company's computer business - a move Whitman reversed when she took the helm last year. In May, HP announced plans to lay off 27,000 employees over the next two years in a bid to revamp its business.

By Scott Martin, USA TODAY

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