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By | Paul Kunert 29th November 2012 16:58

Moody's slashes HP's credit rating

Predicts slide in sales next year

Moody's Investor Service has cut its credit rating on HP indicating a lack of confidence in Meg Whitman's ability to return the sickly tech monster to the road to recovery.

The rating now stands at Baa1, three levels above junk, down from the relatively exalted score of A3 - and the outlook is negative.

"Although HP will maintain strong to leading positions in a number of product areas, the company's credit profile will remain weaker than previously expected over the intermediate term," said Richard Lane, Moody's senior veep.

The downgrade follows a series of blows for HP: it has posted a string of weak quarterly financials, written down EDS and Autonomy and is in the process of axing 29,000 workers worldwide.

The Silicon Valley giant is also facing a lawsuit from one investor amid claims of mismanagement.

The Moody's exec predicted HP's top line will slide by 5 per cent next year and operating margins will shrink relative to the vendor's historic average.

The company generated a whopping $4.1bn in cash flow from operations in its Q4 and $10.6bn for the year, which Whitman said was more than firms including Coca Cola, Disney and McDonalds.

The problem was that its hardware businesses, the backbone of HP, took a beating in Q4, with PC revenue down 14 per cent, printing down 5.3 per cent, and enterprise server, storage and networking sales down 8.6 per cent.

Services were down too, by 6 per cent, and the only light in the portfolio came from HP Software, up 14 per cent.

Whitman said during a Q4 conference call that HP's R&D investment will begin to pay off, cost will move more in line with sales and HP will continue to pay down debts.

"These are real challenges and we don't take any of them lightly," she said.

Resellers have been incredibly loyal throughout these troubles and maintained a silent vigil.

One source from a large HP partner told us he believed Whitman is a good leader "who has the ability to out of the other side, but it's a multiple year journey".

He added: "HP has had an extremely difficult few years accentuated by multiple CEO [departures] and poor acquisitions, except 3Par. At the moment I'd say HP has the general support of customers and partners.

"However, if they were to announce another major issue within the next 12 months I wonder if that would damage them more permanently," said the partner. ®

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