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MAY 18, 2005
By Ben Elgin Good News, but No HP "Quick Fix" Mark Hurd's first quarter behind the CEO's desk ends on an upbeat note, but his overall turnaround plan remains a work in progress Just 47 days since settling into the corner office, new Hewlett-Packard CEO Mark Hurd on May 17 unveiled solid fiscal second-quarter financial results for the computing colossus. But the 48-year-old chief exec said he is still "several months" away from producing a plan to revitalize the slumping company or spelling out whether big cost-cutting measures are in the offing."There's no quick fix to achieving the kind of performance that I think this company is capable of," Hurd said on a conference call with financial analysts. HP (HPQ ) slightly bested Wall Street expectations, notching a second-quarter net profit of $966 million, up 9% from a year ago. The Palo Alto (Calif.) company's revenues rose 7%, to $21.6 billion. As a result, HP's stock climbed 4%, to $21.55, in after-hours trading. The all-business Hurd focused on HP's difficult road ahead, particularly with its traditionally thorny third quarter already under way. "Hard work lies ahead of us if we are to get HP's overall performance where it needs to be," he said. PC BOOST. While Hurd's performance-oriented talk may sound great to HP investors, it will do little to calm nervous employees, because whatever strategy the company pursues, analysts expect it to include job cuts. "We clearly have more work to do to improve our expense structures," said Chief Financial Officer Bob Wayman. Neither Hurd nor Wayman said whether that means more voluntary buyouts or even layoffs. HP recently pared headcount in its flagship printer business by nearly 2,000 employees through voluntary severance packages. Perhaps the best financial news came in HP's long-struggling PC business. The unit's revenues climbed 6%, while operating margins reached 2.3%, the highest level since the controversial 2002 merger with Compaq Computer. Although a positive step, it still trails the company's premerger projection of 3% operating margins for PCs -- a level execs expected to reach over a year ago. Several other HP businesses, meanwhile, are struggling. The company's software division continues to lose money, with a $6 million operating loss for the second quarter. And revenues in HP's data-storage business dropped 6% from the same quarter a year ago. TO-DO LIST Hurd's by-the-numbers performance on the earnings teleconference was a stark contrast to his predecessor Carly Fiorina. He stressed the words "work to do" a half-dozen times in his prepared remarks, while the upbeat Fiorina tended to emphasize HP's positive news. And while Fiorina typically spoke in a polished, conversational clip, Hurd sped through his earnings presentation with a near-monotone delivery. Hurd was recruited to HP from his CEO position at Ohio-based NCR (NCR ) following Fiorina's Feb. 7 ouster. Hurd stopped short of providing his blueprint for HP's future. Since joining the company, he says he has conducted face-to-face meetings with thousands of employees, acquainted himself with HP's top management, and met some of the largest customers. "At this stage, I have more work to do to get further beneath the operations of the company," he said. Hurd will likely have only a few quarters to prove that HP can thrive with its sprawling portfolio of businesses, from digital televisions and cameras to billion-dollar tech-services contracts. Many analysts and investors have long argued that HP should spin-off its PC or printer businesses to reduce the organization's complexity and create more shareholder value. PATIENCE TESTING. For his part, Hurd says that's an option he's not currently pursuing. But if he is unable to show that HP's current strategy can work, calls for a break-up will again reach a crescendo. "My feeling is they'll give this [current strategy] a year," says Chris Foster, senior analyst at Technology Business Research. "Then, people on Wall Street will run out of patience and drive down the stock price." In other words, the toughest steps for HP are still dead ahead. As Hurd said over and over, there's more work to do.  Elgin is a correspondent in BusinessWeek's Silicon Valley bureau
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