sjohnson@mercurynews.com

PALO ALTO -- For the third quarter in a row, Hewlett-Packard (HPQ) reported quarterly earnings that exceeded Wall Street's expectations. But the legendary Silicon Valley company's sales were down from the same period a year ago -- with next year's sales also likely to be sluggish -- and it announced a management shake-up to boost its fortunes.

Palo Alto-based HP said it made a $1.4 billion profit on sales of $27.2 billion for its third quarter, which worked out to earnings of 71 cents per share. That beat the 61 cents per share that analysts surveyed by Thomson Reuters generally had expected.

Nonetheless, the company's sales were off 8 percent from the same quarter a year ago, and CEO Meg Whitman offered a mixed assessment of HP's progress during a conference call with analysts.

"I'm very confident that our turnaround is working," she said, but cautioned that she no longer expects the company's revenue to increase in 2014 and added, "there are areas where we are doing well and areas where we have to improve."

In particular, she noted that the performance of the enterprise group -- which provides computer server, storage and networking products -- "was very disappointing."


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She also announced that Dave Donatelli, who heads the enterprise unit and once was considered a possible CEO candidate, will be reassigned to a job identifying early-stage technologies. He will be replaced by Chief Operating Officer Bill Veghte, whose COO position won't be immediately filled.

That change troubled Raymond James & Associates analyst Brian Alexander, who said in an email to his clients that it "should be received skittishly by investors." Alexander noted that Donatelli "is highly regarded internally and externally." Moreover, "unlike the reassignment of PC/printing head Todd Bradley earlier this year, which many viewed favorably, this move seems strange to us."

HP also announced that Henry Gomez, chief of communications, will assume the role of chief marketing officer. The current marketing chief, Marty Homlish, will move into a new position to bolster HP's customer relationships.

Before the earnings report and management announcements, HP's shares fell 46 cents, or nearly 2 percent, to close at $25.38. Following the disclosure, the stock price tumbled another $1.44 cents in after-hours trading.

Whitman, who became CEO in 2011, has been trying to revitalize HP by reshuffling its executive ranks, reordering its priorities and trimming expenses, in part by laying off 29,000 employees. In response, its stock price jumped 72 percent from Jan. 1 through Tuesday. But she has cautioned that turning around the company will take years.

Although HP sells everything from networking switches, routers and servers to data storage devices, calculators and software, most of its revenue comes from selling personal computers and printers, both of which have been losing favor with consumers amid the rising popularity of smartphones and tablets.

Able to access information easily with mobile devices, consumers find less need for printed documents as well as for desktop or notebook computers. In May, research firm International Data Corp. predicted that PC shipments would drop 7.8 percent this year.

HP also has been dogged by investment missteps. After spending $11 billion for British software company Autonomy in 2011, it recently wrote off about $8.8 billion worth of Autonomy's value, saying it was misled about the company's worth. HP also has written off $8 billion for its 2008 purchase of Electronic Data Systems and nearly $1 billion for its 2010 acquisition of Palm.

Heavily criticized for these problems, HP Chairman Ray Lane in April relinquished his post, which has been temporarily given to hedge-fund manager Ralph Whitworth. Lane has remained a director, but two other HP board members -- John Hammergren and G. Kennedy Thompson -- resigned.

Although analysts have praised Whitman for her efforts, some remain worried about the company.

J.P. Morgan analysts have urged Whitman to sell or spin off some of its product lines, particularly personal computers and printers, which "cast big shadows over the other assets at HP," they concluded in a recent note to their clients.

In a separate note, Wells Fargo analysts said, "HP is executing well with respect to its turnaround plan," but warned that "growth challenges remain" for the company.

Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.