HP forced to write off $8bn on struggling services arm

TECH giant Hewlett-Packard (HP) yesterday increased its third quarter earnings forecast despite an $8bn (£5.1bn) writedown on the value of its services business.

The staggering writedown, attributed by HP to market conditions coupled with recent trading values of its stock, provided fuel for analysts who accused HP of overpaying for its $13bn acquisition of EDS in 2008.

The division, the company’s second biggest revenue driver behind computers, has struggled since then as competition during the recession has seen the value of contracts plunge. Its sales growth was flat for the first half of the year at $17.5bn.

However, HP’s decision to boost its third quarter earnings guidance to $1 a share from its previous guidance of $0.94 to $0.97 seemed to appease investors. The shares rose 2.4 per cent to $19.41 yesterday, but remain almost 60 per cent lower than their price at the time of the EDS acquisition.

HP, which revealed a major restructure in May involving 27,000 job cuts, also raised the pre-tax charge it expects for the quarter to between $1.5bn and $1.7bn from $1bn. It said this was due to a higher than expected rate of acceptance for its early retirement and workforce reduction programmes.