Hewlett-Packard May Hit Bumps, But Long-Term Optimism Intact

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Hewlett-Packard May Hit Bumps, But Long-Term Optimism Intact
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Barclays analysts Ben A. Reitzes and Ryan Jones take a look at Hewlett-Packard’s outlook, with a special focus on how it is affected by Canon.  They see some short-term downside but ultimately conclude that they should be fine in the long run.

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Canon Inc. (covered by Barclays’ Masahiro Nakanomyo) reported 4Q13 results today. We believe Canon’s laser beam printer commentary tends to provide a good read for Hewlett-Packard Company (NYSE:HPQ)’s laser printer business as Hewlett-Packard Company (NYSE:HPQ) sources all of its laser printer engines and toners from Canon and partners with Canon for certain sales. We believe the results seem relatively supportive of our near-term estimates – though the full year outlook likely implies a lack of revenue upside in commercial printing in 2014. We also believe that Hewlett-Packard Company (NYSE:HPQ)’s supplies revenue could see some improvement this year, though it could still be hard for HP to see growth for the full year.

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Impact of Canon

For C4Q13, Canon reported 22% y/y growth in laser printer unit volumes, though the company was lapping a very easy compare of an inventory adjustment, so the figure does not seem to be representative of Hewlett-Packard Company (NYSE:HPQ)’s growth this quarter. Within printers, color laser units increased 37% y/y and monochrome laser units increased +20% y/y. Canon seemed to point to healthy demand for color and a recovery in the overall the laser market. Management attributed healthy volumes to stronger shipments for Laser MFDs. Canon seems to be performing well in color and we believe the company may seeing a mix shift to lower end versions. Canon expects a +1% y/y increase in laser unit sales in 2014 following a +14% increase in 2013.

Hewlett-Packard estimates

Given the performance in lasers from Canon, we believe Hewlett-Packard Company (NYSE:HPQ) estimates could have some modest revenue downside for the year though near-term trends appear fine. For Hewlett-Packard Company (NYSE:HPQ)’s fiscal 1Q14, we estimate a decline in IPG revenues of -1% y/y (-3% q/q), which includes a +4% y/y commercial hardware revenue level (-9% q/q). For Hewlett-Packard Company (NYSE:HPQ)’s fiscal 2Q14, our estimate is for a -2% y/y decline in IPG revenue which includes a modest y/y commercial hardware revenue increase (+1% q/q) and an overall supplies decrease of – 4% y/y (+5% q/q).

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