HP sent a ripple through the technology investment market with a July 10 announcement that it expects far fewer orders for its quarterly report scheduled for this month. HP's stock price lost 12 percent of its value in a single day's trading after the announcement, which was released after the markets closed. HP had offered a 2-for-1 stock split about three weeks before the order announcement, so some correction of its share price might have been expected. But the company wasn't bashful about predicting its customers are revising their plans to acquire capital investments such as computer systems.
"We're seeing the effects of customers and channel partners who are adjusting their inventories and capital spending," said HP CEO Lew Platt. "We'll know the exact impact of these changes on our full-quarter's results in about a month, but it's clear that this slowdown in order growth, as well as intensifying price competition, will hurt our revenue growth and profitability."
HP expects to release its third quarter results in the week of August 12, just after the HP World conference closes.
It is possible that the order slowdown may prompt some changes in HP's business strategy relative to the HP 3000 line and its alternatives. High-cost, low-margin lines -- such as Unix and Windows NT -- have produced ample revenues in the past, but may now be getting more scrutiny on expenses. For the moment, HP is tightening spending across the board.
"We're already taking action on discretionary spending across the company, and we're evaluating our future spending plans in light of the changing demand environment," Platt said. "We don't know yet whether the forces that are affecting our order growth represent a fundamental shift in the business climate or more seasonal, transitory fluctuations in demand. What we do know is that HP's businesses remain very sound fundamentally, and that we'll continue to make appropriate investments to support growth opportunities."
Analysts said the fact that HP is experiencing an order slowdown around the world indicates the trend is industry-wide. The HP announcement, coupled with a weak earnings report from Motorola the day earlier, triggered a technology sell-off in the days that followed. Many competitors' stocks fell, but Intel -- HP's partner in the Merced project -- posted record earnings for its latest quarter less than a week after the HP announcement.