Hewlett-Packard (NYSE:HPQ) is due to release its Q1 2013 earnings on February 21, and the PC giant’s earnings will reflect the slowing PC market, its restructuring and the effect of accounting allegations against its British software unit, Autonomy. In Q4, 2012, the company reported a net loss of $6.9 billion, mainly due to a $8.8 billion impairment charge related to the Autonomy acquisition. The company also provided a detailed turnaround strategy and 2013 outlook where the company expects a marginal decline in revenue across all segments in 2013, except in the software division. The enterprise services business is expected to have revenues of up t0 13% lower and significant margin pressures as well. 
In an effort to stay competitive and release innovative products, the company had planned to increase R&D expenses and IT spending. It planned to simplify business processes and lower its sales and marketing expenses as it rolled out a CRM service across the organization by implementing Salesforce.com’s products and services. The company also plans to reduce its workforce by 27,000 that is expected to save $3-$3.5 billion annually. Our valuation is contingent on how effective the turnaround is and the growth potential of its new business lines, and we will be watching these closely this quarter.
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For the Q1 2013, HP estimates non-GAAP diluted EPS to be in the range of $0.68 to $0.71 and GAAP diluted EPS to be in the range of $0.34 to $0.37.
EDS, Autonomy Will Weigh On Software And Services Business
As the company went through restructuring efforts, the guidance provided by HP stated that revenues were expected to decline across all divisions except in the software division. If the allegations against Autonomy by HP turn out to be true, the software business may suffer as the potential earnings from the Autonomy acquisition would have been inflated and the actual earnings potential may be much lower.
EDS, which was acquired to boost the services division, suffered a downturn and was the primary reason for the restructuring effort involving letting go of 27,000 employees. We have updated our estimate to account for the write-downs, and will further update our model pending the investigation into the fraud allegations.
The Enterprise Services business will be affected the most and HP expects to have revenues lower by up to 13% annually. We currently have a $16 Trefis price estimate for HP, which is around the current market price.Notes: