Hewlett-Packard: Expect Guidance Below Street Estimate

EVENT HPQ Scheduled To Report FQ1 Revs, FQ2 Guidance After The Close
CAUSE Supply Chain Analysis Suggests Guidance Well Below Street Estimate Of $30.951B
IMPACT Negative For HPQ, DELL, PC Supply Chain
ACTION Continue To Avoid HPQ, DELL, PC Supply Chain

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SUPPLY CHAIN EVENT TRACKER
1.15.09 Supplier INTC provides “internal” Q1 rev target -3.8% below Street expectations
1.20.09 Competitor IBM declines to provide Q1 rev guidance
1.21.09 Supplier STX guides Q1 revs -17.7% below Street expectations
1.22.09 Supplier AMD guides Q1 revs “down” without further quantification
1.22.09 Supplier MSFT declines to provide FQ3 gudiance due to economic conditions
1.27.09 Supplier ELX guides Q1 revs -21.1% below Street expectations
1.28.09 Supplier CAJ Q4 revs light, guides 2009 revs -5.5% below Street expectations
1.28.09 Supplier FLEX guides FQ4 revs -16.3% below Street expectations
1.28.09 Supplier WDC guides FQ3 revs -7.1% below Street expectations
1.29.09 Supplier BRCM guides Q1 revs -12.1% below Street expectations
2.10.09 Customer ARW guides Q1 revs -9.5% below Street expectations
2.10.09 Supplier NVDA guides FQ1 revs -10.0% below Street expectations
2.11.09 Supplier NTAP declines to provide Q1 guidance due to economic conditions
2.17.09 Supplier AUTH guides Q1 revs -48.7% below Street expectations

EVENT: EXPECT FQ2 GUIDANCE BELOW STREET. HPQ is scheduled to report FQ1 (Jan) revs and FQ2 guidance today after the close. The Street currently expects FQ1 revs of $31.927B (-5.0% Q/Q; -1.0% below midpoint of management’s guidance of $32.25B). The implied -5.0% Q/Q decline is below a consistent 8-yr avg of +13.0% Q/Q (σ=3.26). The Street expects FQ2 revs of $30.951B (-3.1% Q/Q, modestly below a very consistent 7-year average of -0.3%; σ=1.36).

CAUSE: NEGATIVE SUPPLY CHAIN DATA. Commentary from virtually every PC supply chain or enterprise hardware company has indicated continuing deterioration in business fundamentals, or else not provided guidance at all as a result of the poor macroeconomic conditions. As the table below shows, the average Q/Q rev decline for the Mar Q for companies in HPQ’s supply chain (including competitors and select enterprise hardware names) is -19.0%)—yet the Street is assuming just a small Q/Q rev decline at HPQ (-3.1%), modestly below seasonality (-0.3% Q/Q).

IMPACT/ACTION: CONTINUE TO AVOID HPQ + SUPPLY CHAIN. We would continue to avoid HPQ and its supply chain until we see any improvement in the data. Based on these supply chain data, if HPQ provides any guidance at all (IBM and EMC have not), we believe HPQ could guide FQ2 revs to a decline of 10-15% Q/Q, or $27.14-28.73B, well below the Street’s $30.951B.

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