Hewlett-Packard Co. surprised Wall Street on Thursday by revealing that profit in its fiscal third quarter fell far short of expectations.
The computer maker ousted a trio of top managers in charge of the businesses with disappointing results. HP also cut its outlook for the current quarter, prompting the stock to sink as much as 18% before ending the day at $16.96, down $2.57, or 13%, on the New York Stock Exchange.
Chief Executive Carly Fiorina said the problem stemmed from "unacceptable execution" in its enterprise division, which sells complex computing and data-storage systems to corporations, universities and government clients.
HP has been struggling to lift the division into solid profitability but faces fierce competition from archrival Dell Inc. on the low end and IBM Corp. at the high end.
In its own earnings report after the markets closed, Dell said its second-quarter profit rose 29%, in part because of steadily increasing demand for its server computer and storage products.
Dell, which has already overtaken HP as the top seller of personal computers, saw its stock rise to $34 in extended trading Thursday after slipping 45 cents to $33.12 on Nasdaq.
"A quarter doesn't make a trend, but clearly [HP] has an uphill battle continuously competing on price with Dell," said Nick Nilarp, an analyst with Fitch Ratings in New York. "Dell has consistently been able to gain profitable market share."
Fiorina said HP's performance in its printing, PC and services groups was satisfactory, but that "these solid results were overshadowed by unacceptable execution" in the enterprise group.
"We therefore are making immediate management changes," she said. "We are also accelerating our margin improvement plans in this business. With these changes, we expect our server and storage business to return to profitability in the fourth quarter."
Palo Alto-based HP earned $586 million, or 19 cents a share, in the three months ended July 31, nearly double the $297 million, or 10 cents, it made in last year's third quarter.
Revenue rose 8.9% to $18.9 billion from $17.3 billion a year ago, but operating profit of 24 cents a share was well short of the 31 cents expected by analysts surveyed by Thomson First Call.
HP also said its operating profit in the current quarter would be 35 cents to 39 cents a share on sales of $21 billion to $21.5 billion. Analysts had been expecting operating profit of 43 cents on $21.3 billion in revenue.
