Moody's lowered HP’s senior unsecured credit rating by one notch, to “Baa1” from “A3.” The rating remains investment grade but Moody's said its outlook is negative, implying it could be further downgraded.
About 75 percent of HP’s revenue comes from personal computers, enterprise servers, printers and services, Lane noted. He said those offerings “face slow to no growth prospects over the coming years.”
Moody's expects the company’s revenue will likely decline 5 percent next year and its profit margin will narrow. It sees free cash flow after dividends next year of about $4 billion, down from an earlier estimate of $6 billion to $7 billion.
Moody's began its review of HP’s rating in October. HP has been falling out of favor on Wall Street as its personal computer and printer businesses face increasing competition from tablet computers and smartphones.
To add to its doldrums, HP announced last week that it took an $8.8 billion charge because it determined a business software maker it acquired for $10 billion last year was worth far less. HP has alleged that the acquired company, Autonomy, lied about its finances.
In August, HP disclosed that its $13 billion acquisition of technology consulting service Electronic Data Systems wasn’t working out as well as management had expected.
The trouble in Autonomy and EDS has forced HP to absorb nearly $17 billion in accounting charges in the past two quarters, resulting in the biggest losses in the company’s 73-year history.
HP’s market value has been cut in half since the beginning of the year.
Moody's assigns the “Baa1” rating to debt that it believes is on the lower end of investment grade. Companies with the rating are subject to moderate risk of default, placing them somewhere between safe and speculative investments.
HP’s stock closed up 37 cents, or 3 percent, at $12.73.
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