'Soft' UK public sector spend drags HP down in Q2

Tech giant flags up channel inventory issues in its printing division

HP has said "softer" spending in the UK public sector and high channel inventory in its Printing division partly contributed to a slump in its net profit in Q2.

For the three months to 30 April, net profit at HP dropped 21 per cent annually to $1bn (£640m) on revenue which over the same period fell seven per cent to $25.5bn.

Sales across all HP divisions were down year on year in Q2, with channel inventory issues dragging sales down by seven per cent in its Printing segment.

HP chief financial officer Catherine Lesjak said the firm was working to address the problem.

"We exited the quarter with supplies channel inventory [in Printing] slightly above our desired range due to slowdown in sales in April," she said. "We expect to reduce channel inventory levels in the second half and will continue to closely monitor demand trends."

The firm pointed to geopolitical issues in Russia and China as another reason sales fell, as well as "softer public sector spending in the UK".

HP chief executive Meg Whitman said plans were going well for the upcoming split.

"Turning to the separation, as you will recall last October we announced our plan to separate HP into two independent Fortune 50 companies," she said on a call transcribed by Seeking Alpha. "Today, I am more convinced than ever that this is the right thing to do. Over the past six months we've seen the markets continue to shift and evolve at a rapid pace.

"Since October, we've made substantial progress across a number of areas which gives me confidence that we will complete the separation by the end of our fiscal year. We've completed the leadership and organisational structures for each company and largely completed our workforce assignments.

"We have made progress in recruiting new board members for each company. We've evaluated how we can best meet customer needs and as a result have planned a new, optimised, partner-driven go-to-market approach in over 50 global markets. Our real estate teams have made decisions about our sites around the world, and we've performed thousands of hours of IT system testing ahead of the separation."

As HP reported its Q2 results to investors it also announced it is to sell a majority stake in its Chinese server business for $2.3bn.

"Tsinghua Holdings subsidiary, Unisplendour Corporation, will purchase a 51 per cent stake in a new business called H3C, comprising H3C Technologies and HP's China-based server, storage and technology services businesses," HP said.
The firm claims the combination of the two entities will create a "technology powerhouse" in China.

"HP sees continued long-term growth opportunities in China, and HP China will maintain 100 per cent ownership of its existing China-based Enterprise Services, Software, HP Helion Cloud, Aruba Networks, Printing and Personal Systems businesses," it said.