H-P hit by reports of PC spinoff ahead of results

Tech giant also reportedly planning $10 billion acquisition of Autonomy

SAN FRANCISCO (MarketWatch) — Hewlett-Packard Co. was hit by rumors of a $10 billion acquisition as well plans to spin off its PC business on Thursday afternoon — just hours before the high-tech giant was slated to report results for its third fiscal quarter.H-P HPQ -3.15%  is reportedly planning to sell its PC business, and is close to a $10 billion deal to buy data analytics company Autonomy Corp., according to reports from the Wall Street Journal and Bloomberg.

In a statement, Autonomy confirmed that “it is in discussion “ with H-P “regarding a possible offer for the company.”

The news sent shares of H-P jumping in afternoon trades before they plunged back as the broader tech market tumbled. The stock was down more than 4% at last check. A company spokesman said H-P had no comment.

In a note to clients on Thursday, Gleacher & Company analyst Brian Marshall said, “the potential divestiture or spin off of H-P’s PC business is a long-term positive, however, this will not change the near-term challenges that the leading IT players highlighted this week.”

In fact, H-P is reporting financials as it reels from a rash of bad news, including worries of eroding corporate demand as well as reports that the TouchPad, its vaunted entry into the tablet market, has flopped.

The Palo Alto, Calif.-based H-P also faces mounting skepticism about its competitiveness in an evolving industry.

Sentiment on H-P has been so negative , another analyst was skeptical about the reportedly planned merger and spin-off.

“I rumors are true, they will try to misdirect away from more bad results with another dubious overpriced acquisition and/or spinning of the PC business,” Auriga’s Kevin Hunt said in an e-mail.

Analysts expect H-P to post a profit of $1.09 a share on revenue of $31.2 billion, according to a consensus survey by FactSet Research.

In the year-earlier period, the company posted earnings of $1.08 a share on revenue of $30.7 billion.

After a series of disappointing quarters, the pressure is mounting on H-P and its chief executive, Léo Apotheker, who took over last year following the expense-accounting scandal that forced out Chief Executive Mark Hurd.

On Wednesday, BMO Capital analyst Keith Bachman downgraded H-P to market perform from outperform, and offered some bruising commentary on the company’s management.

“We suspect that management will make the point that previous management cut H-P too much,” Bachman wrote in a note. “However, previous management did not provide guidance, and then miss for three quarters, particularly right after having an analyst event. We would leave blaming the previous administration to politicians — it does not work with investors.”

NetApp Inc.’s NTAP -15.99%  warning of a “dramatic slowdown” in demand in July also led to concerns that the corporate market for information technology is suffering in an increasingly wobbly global economy. 

 That report prompted Pacific Crest Securities to downgrade major IT hardware and networking companies, including H-P.

“Not only is Hewlett-Packard is the largest IT hardware supplier in the world that would be the most susceptible to budget cuts, but it is also strategically challenged by mobility and cloud-computing trends,” according to analyst Brent Bracelin.

To complicate matters for the Silicon Valley giant, H-P’s effort to raise its profile in the fast-growing tablet sector hit a snag on media reports of weak sales for its newly released TouchPad.

To be sure, the new product was not expected to be a major top-line contributor, but the fact that the TouchPad apparently has not taken off is bound to raise even more doubts about H-P’s bid for a stronger position in the consumer market. Read more about TouchPad sales in Therese Poletti’s Tech Tales.

The company’s PC business is widely seen as being hurt by weak consumer demand.

Sterne Agee analyst Shaw Wu wrote that he expects H-P to “guide its October quarter modestly below consensus due to weakness in consumer [sales].