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Hewlett-Packard Sales Slump Shows CEO Whitman’s Challenge

August 23, 2012

Hewlett-Packard Sales Slump Shows CEO Whitman’s Challenge

HP (Hewlett-Packard) President and CEO Meg Whitman delivers a speech during the Global Influencer Summit 2012 in Shanghai. Photograph: Imaginechina via AP Images

Hewlett-Packard Co. (HPQ:US) posted a record (HPQ:US) quarterly loss and reported slumping sales for personal computers and services aimed at businesses, underscoring the turnaround challenge facing Chief Executive Officer Meg Whitman.

The fiscal third-quarter loss of $8.86 billion includes a writedown for the enterprise-services unit and reflects a 10 percent decline in PC revenue. The company pared the high end of its full-year forecast for profit excluding some items to $4.07 a share, from $4.10, missing the average $4.08 analyst estimate (HPQ:US) compiled by Bloomberg.

Almost a year into her tenure at the helm of the largest personal computer maker, Whitman is boosting investment in research and development and revamping the PC, printer and enterprise-services units. Hewlett-Packard, which will discuss its 2013 outlook at an analyst meeting in October, is under pressure (HPQ:US) from rivals such as Apple Inc. in computing devices and International Business Machines Corp. among corporate clients.

“HP seems to have lost share in all of the key enterprise segments,” Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York, wrote in a research note after the results.

Hewlett-Packard fell 8.2 percent to $17.64 at the close in New York, the biggest decline since August 2011. The stock (HPQ:US) has dropped 32 percent this year.

The PC market remains weak, and the company is in the “early stages of a turnaround,” Whitman said yesterday on a conference call with analysts.

Windows 8

To help revive the PC division, Hewlett-Packard plans to release a tablet computer running Microsoft Corp.’s Windows 8 software later this year. The device will be aimed mainly at businesses rather than consumers, Whitman said in an interview. The company decided to design a tablet that’s “desirable” to workers while including security and durability features, rather than trying to take on Apple’s iPad directly, she said.

“Make no mistake about it, the consumer tablet market today is an Apple market,” Whitman said. “Our decision was not to just go straight at Apple with a me-too product.”

The company wants to ship the tablet this year, after the October introduction of Windows 8, though it may land on store shelves until next year, Whitman said.

Sales in Hewlett-Packard’s PC division declined 10 percent to $8.62 billion, Palo Alto, California-based Hewlett-Packard said yesterday in a statement. That added to evidence of a slump that showed up in results this week from Dell Inc. (DELL:US), which forecast third-quarter sales that missed estimates and cut its full-year profit outlook.

Defending Position

Even as she avoids chasing Apple on the consumer side, Whitman said she plans to defend Hewlett-Packard’s leadership in the larger market.

“We’re going to defend our No. 1 position” in PCs, Whitman told analysts. Lenovo Group Ltd. (992) has almost caught up with Hewlett-Packard as the world’s top PC supplier.

Profit excluding costs was $1 a share and sales (HPQ:US) were $29.7 billion in the third quarter ended July 31, matching analysts’ predictions. The per-share figure also met Hewlett-Packard’s forecast. Earnings excluding some items for the fiscal year ending in October will be $4.05 to $4.07 a share.

Results were affected by global economic weakness as customers take longer to agree to purchases, Chief Financial Officer Cathie Lesjak said in an interview.

Challenging Environment

“It was a tough, challenging economic environment,” she said. “The amount of time it takes to close deals is lengthening.”

One bright spot was sales of servers aimed at helping consumer Internet companies handle the rising tide of data coursing through user-profile pages.

“It’s where all the growth in the market is,” Whitman said on the conference call.

Third-quarter revenue declined 3.1 percent to $8.75 billion in services and slumped 2.7 percent to $6.02 billion in printers. Sales also slipped in the servers, storage and networking unit. Software climbed, increasing 18 percent.

In services, IBM has emulated the more efficient models of rivals such as Wipro Ltd. (WPRO) and Tata Consultancy Services Ltd. (TCS) by staffing up in India, said Lamba, who has a neutral (HPQ:US) rating on the shares. Hewlett-Packard hasn’t done so, he said.

Cutting Jobs

Whitman is cutting 27,000 jobs over two years and plans to invest in areas including security, cloud computing and data- analysis software. She’s also dismantling the acquisitions (HPQ:US) of Electronic Data Systems Corp. and Palm Inc., which were made by Mark Hurd, who was CEO from 2005 to 2010.

The company had said on Aug. 8 that third-quarter profit would be $1 a share. The company also said at the time that it would write down the value of its enterprise-services business by $8 billion, and take a higher-than-expected $1.5 billion to $1.7 billion charge for early retirement packages offered to workers.

The company is eliminating 10,000 to 15,000 jobs from the enterprise-services unit as part of the job cuts. The writedown reflects the dwindling value of EDS, bought by Hurd for $13.2 billion in 2008.

About 11,500 workers will leave Hewlett-Packard by the end of October, and the company plans to spend the savings on new software for its employees, cloud computing services, and “rainy day funds” to help bolster profits, Whitman said in the interview.

Whitman became CEO in September.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • HPQ
    (Hewlett-Packard Co)
    • $37.0 USD
    • 1.88
    • 5.08%
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