HP shares slip on news of memo

Hewlett-Packard shares dropped Friday after a report that the head of HP's services unit sent a memo to staffers Monday discussing possible problems with the division's performance.

According to published reports late Thursday, the missive, sent by HP Services President Ann Livermore, called the unit's revenue and profit "well below plan." An HP representative confirmed Friday that Livermore sent a message to the unit, but she would not discuss the memo's contents.

A representative for HP, who asked not to be named, said the memo was a typical "mid-quarter rallying cry," and pointed out that the services unit is a small segment of HP that typically is "back-end loaded," meaning that most of the revenue comes at the end of the quarter.

HP shares were down nearly 2 percent Friday, closing at $18.15. They fell as much as 5.4 percent earlier in the day.

HP's second quarter runs from February through April. In the first quarter, the information-technology services division recorded net revenue of $1.55 billion and operating earnings of $203 million, around 32 percent of total operating earnings.

There has been concern that the brouhaha over HP's fight to get its merger with Compaq Computer approved by shareholders could scare off potential customers.

"You talk to HP and Compaq's competitors and they'll tell you (right) off the bat that they're benefiting from all the chaos around the merger, so there may be some truth to that, but you should take it with a grain of salt," said John Madden, analyst at Summit Strategies.

But he said that the cause could just be that customers were delaying their decisions until the merger issue was settled, as opposed to changing services companies entirely.

"There's been no wholesale defections, but (the confusion) may have made some customers hesitant," he said.

Investors, however, appeared to be unhappy with the implication that the quarter might be in jeopardy.

"It would be particularly disturbing in the face of HP's efforts to avoid major disruptions in the business from the merger," wrote Goldman Sachs analyst Laura Conigliaro in a research note.