HP Q2 2011 earnings up, forecasts a weak third quarter 20

Following the leaking of a not-so-good letter from HP CEO Leo Apotheker to senior management, HP decided to move their quarterly earnings report up a day. The Silicon Valley giant reported earnings of $2.3 billion on revenue of $31.6 billion, barely up from $2.2 billion on $30.8 billion from the previous quarter (GAAP diluted). Year-over-year revenue was up just 3%, while earnings rose 5%. Non-GAAP adjusted earnings-per-share rang in at $1.24, bearing industry analyst expectations of $1.21.

In this morning’s conference call, Apotheker noted that revenue from the HP Personal Systems Group (the division responsible for making HP’s computers and where the Palm Global Business Unit resides) declined 5% on weakening consumer demand for PCs, though corporate sales remained strong. Though not explicitly mentioned, it’s safe to assume that the Apple iPad has been eating into HP’s lower-end PC revenues, a tide they hope to stem with the upcoming release of the HP TouchPad.

The day-early release was prompted by a Bloomberg report on a leaked letter from Apotheker to HP’s top executives, advising them to brace for “another tough quarter” and that HP must “watch every penny and minimize all hiring.” Apotheker went on to say that HP’s massive employee count is “unaffordable given the pressures on our business,” a clear hint that layoffs, perhaps massive, may be on the horizon. Such layoffs were the hallmark of preceding CEO Mark Hurd, who’s cost cutting in the search for profit pushed HP to the top of the PC-maker heap, except with the rug taut and ready to be pulled out.

The most damning quote is one that is sure to strike fear into the hearts of many webOS fans: “Q3 is going to be another tough quarter, one in which we will be driving hard for revenue and profit. We have absolutely no room for profitless revenue or any discretionary expenditures.” HP has said that they have plans for a massive advertising push for the TouchPad and other webOS devices, and we have little doubt that HP’s going to turn much, if any, profit on their webOS investments until much later (barring some miracle consumer adoption rate). Still, given how much Apotheker keeps talking up webOS as integral to HP’s vision, we can’t see anything getting the axe, especially this far into the game.

HP forecasted rising, though weak, earnings for the current quarter. They’re expecting revenue between $31.1 billion and $31.3 billion, falling a few hundred million short of analyst expectations. Additionally, HP anticipates earnings falling to $1.08-a-share, down significantly from the analyst predictions of $1.24-a-share.

HP shares were down nearly 7% in early trading. Since taking charge in November 2010, Apotheker has stood over a 5% overall drop in HP’s value, though since HP’s February earnings report, the stock price had dropped 17% leading up to yesterday’s report (now down closer to 23%).