Wednesday, May 19, 2010

HP Naked Global FX Risk

Hewlett Packard (HPQ) nailed it this last quarter and printed some strong numbers. The earnings release has this snippet. “Revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue”

Then you read “Cathie Lesjak, HP executive vice president and chief financial officer. “With the improving demand environment, we are accelerating investments for growth while raising our full-year outlook.”

66% of revenue is subject to foreign exchange risk. What percentage of costs are subject to FX risks? HP is a global entity. They have outsourced manufacturing to low cost jurisdictions. They have retained high cost high value labour in USD and Euro.

How are they managing the FX risk on and enterprises basis?

Disclosure: No position in this stock