HP may have yet another problem: China

HP may have yet another problem: China

SAN FRANCISCO - Signs of rapidly worsening Chinese demand for IT giants IBM and Cisco Systems Inc are starting to spook Hewlett-Packard investors.

HP's year-long stock rally sputtered last week amid fears a faster-than-anticipated slowdown in emerging markets, above all China, may dash the computing giant's hopes for a return to growth in 2014 or beyond.

Cisco has warned about crumbling Chinese demand. IBM last month reported a sales drop of over 20 per cent in the world's No. 2 economy.

Both also reported weakness in other emerging markets as well, but it was China and concerns about sales declines in that market that has grabbed headlines.

HP is already grappling with expectations of slowing US federal spending, a fundamental erosion of PC demand and unrelenting competition from Lenovo and Dell. So it can ill afford a steeper-than-expected dropoff in China, which is estimated to account for a fifth of HP's revenue and is one of its most crucial growth markets.

Investors are looking to the computing giant, which reports quarterly results on Tuesday, to shed more light on goings-on in the world's largest PC market.

"All the giant tech companies are somewhat at risk now. You have to worry if the other companies are going to report the same kind of thing in their fourth quarter," said Peter Tuz, President of Chase Investment Counsel Corp in Virgina.

Shares in HP, up 77 per cent so far this year, have lost almost 5 per cent in the week since Cisco blamed a dismal business outlook on deepening fallout from the Snowden revelations. Some analysts also blame competition from networking giant Huawei and the government's increasing tendency to buy local.

Mizuho Securities analyst Abhey Lamba cited another culprit: a slowdown in spending by Chinese state enterprises awaiting policy signals from a new government.

Microsoft said China was the company's weakest performing market during the September quarter. The picture is far from clear, however. Juniper Networks said last week its business continues to grow in Asia, including China.

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