Uncertainty is a major factor dragging down HP's stock

Hewlett-Packard Comp. (HPQ) was in for a bad quarter, according to analyst predictions.  Reporting its results after the bell on Monday, it painted a picture of drooping revenue that, while disappointing, did contain some promising signs.

I. Earnings Shows Signs of Hope, But WebOS Freeze Hits HP Hard

Revenue fell almost exactly where the experts predicted.  The company reported Q4 2011 revenue of $32.122B USD (GAAP adjusted), just a hair beneath the $32.135B USD analyst consensus.  Likewise the annual reported GAAP revenue of $127.245B USD for fiscal 2011 was almost identical to the $127.257B USD analysts expected.

The lone positive for HP was its non-GAAP net earnings (profit), which were reported at $1.17 USD/share, better than the $1.1416 USD/share analysts were expecting.  Likewise non-GAAP annual earnings for fiscal 2011 were at $4.88 USD/share, better than the $4.85 USD/share consensus.

Both revenue and earnings were down versus 2010 on an annual basis and Q3 2010 on a quarterly basis.

In summary, HP's revenue fell short of the analyst predictions, but its earnings did better than predicted.

Of course, the revenue picture for HP is still pretty bleak when you consider the GAAP earnings, which factor in the discounts and other costs of freezing webOS development and killing the webOS product lineup.  HP estimates the webOS wind-down cost it $3.3B USD.  With those costs included HP was barely profitable, with $0.2B USD in GAAP net earnings, versus $2.5B USD last year.

webOS family
HP decision to kill webOS sunk earnings. [Image Source: All About webOS]

Despite the better than expected earnings, HP stock has been down between 3 and 4 percent today.

II. The TouchPad Unexpectedly Becomes the #2 Best-Selling Tablet

HP somewhat offset the webOS losses thanks to the strong demand for its TouchPads, which were sold at a $99 USD price (or lower) during an August fire sale clearance.  In total 1.2 million units were moved -- rough 17 percent of total U.S. tablet sales for the quarter, according to the NPD Group.  That makes the TouchPad the second best-selling tablet behind Apple, Inc.'s (AAPL) iPad.  (Samsung Electronics Comp., Ltd. (), the top Android tablet maker was close behind with 16 percent of the market.)

HP TouchPad
HP's TouchPad was the #2 best-selling tablet in the U.S. for Q3 2011.
[Image Source: Anandtech]

Many felt that webOS had the best multi-tasking support in the industry and many other features (Synergy, email app, free lifetime 50 GB access to, notification system, drag and drop file loading, wireless printing to HP printers, and Preware, to name a few) that were industry leading.  

Fans are actively trying to port Google, Inc.'s (GOOG) Android OS to the TouchPad, much to HP's chagrin.

III. Uncertainty Weighs on HP, From All Fronts

While HP may be leaving the expense of ditching webOS in the rear view mirror, significant concerns remain.  With its third executive in just over the year [1][2] -- ex-eBay, Inc. (EBAY) chief Meg Whitman -- at the helm, leadership and direction are clearly issues for the company.

If you count iPads as "personal computers" as some analysts have started to, Apple hauled in 15 percent of global sales, versus 16 percent for HP, according to Canalys.  A surging Lenovo Group, Ltd. (HKG:0992) looms, as well, with 12 percent of global sales.  

The IDC Group, who does their account slightly differently -- not including iPads as PCs -- placed HP's market share 18.1 percent and Lenovo in second place at 13.7 percent (Apple did not make the list).  But the IDC indicated that Lenovo rose 36.1 percent in sales, versus only 5.3 percent for HP.  HP's growth is just a bit above the market average of 3.1 percent for the quarter, but if falls far short of the dynamic growth we're witnessing from Lenovo.

Lenovo is growing nearly 7 times as fast as HP in PC sales. [Image Source: CleverBoxes]

Thus while HP remains on top of the pack of personal computer makers, in terms of global sales, there's a very real possibility it could lose its lead within the next year.

HP is in the PC market for the long haul.  CEO Meg Whitman recently announced that the company was ditching plans to spin off the PC business, a move which resulted, in part, in a shareholder lawsuit.

Further complicating the situation for HP is ongoing uncertainty about webOS.  Becoming the second biggest maker of tablets was an unexpected honor for the company, despite it coming in an odd form.  But HP appears to be still leaning towards a sale of webOS.

It's important to exercise skepticism as multiple sources have erroneously reported dates for an announcement [1][2].  But the latest reports point to a December window for a final decision -- sale or otherwise.  They indicate that a sale would hinge on HP being able to continue to use webOS in its printer line.  If HP cannot find a buyer it may opt to keep the struggling mobile operating system, possibly plotting a relaunch.

Sources: HP, NPD Group, Financial Times: Forecast

"I modded down, down, down, and the flames went higher." -- Sven Olsen

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