News
HP's Report Modestly Positive for EMS Vendors
PALO ALTO, CA --Hewlett-Packard, one of the largest customers of the EMS industry (including companies such as Flextronics, Sanmina-SCI, Jabil, Solectron and Celestica) has faced sluggish demand and an inventory reduction, according to its latest earnings call. The company's total revenue slowed to 7% year on year vs. 10% last quarter.
According to Deutsche Bank analyst Chris Whitmore, strong (10%) sequential growth from HP's business critical servers offset slowing industry standard server revenue and a 6% decline in storage from last year. The division's operating margin improved to 4.4% vs. 1.8% last year.
HP experienced a rebound in printer demand in the April quarter, with sales up 5% year-on-year following aggressive price cuts. Home hardware sales increased 3%, while business printers grew 4% from last quarter (Flextronics has the most exposure to home hardware sales while Jabil has the most exposure to business printers, DB said).
Revenue from PCs grew 6%, decelerating sharply from last quarter's 11% growth -- as desktop growth fell to 1% from 8%. The commercial business increased 3%, with a 10% consumer growth (Sanmina-SCI manufactures commercial desktops for HP).
DB also reported that HP is selling two PC manufacturing plants to Hon Hai in Australia and India.
HP reduced inventory by $656 million and days of inventories to 35 (the lowest level since the second quarter of 2002). Roughly $500 million of the decline was in the printing division.
DB analysts noted that demand remains lackluster and pricing remains aggressive throughout the IT HW industry. In addition, HP's new management team could implement significant changes to its supply chain in an effort to drive lower costs, creating risk to EMS vendors' existing relationships with HP. That said, HP's inventory management meaningfully improved in the quarter.
