If investors and observers were looking for clarity from HP’s quarterly figures, then last night’s conference call by newbie CEO Meg Whitman won’t have disappointed. There were a lot of issues cleared up, even if some of the news was not what investors might have hoped for.
The bad news is the fact that, for 2012, Whitman is predicting a sluggish market, not because of anything that HP is doing or not doing, but because no one is quite sure whether the global economy will tank or not, and enterprises are holding onto their money.
She was also clear that no decision has been made yet on WebOS, throwing a major spanner into the rumor mill that has already postulated that even Oracle might buy it.
However, she did clarify HPs strategy for the next year, which will consist of developing the talent and products that it already has -- could this mean a reprieve for webOS? -- stamping out the acquisition fire that saw HP pay over US$ 10 billion for Autonomy, and knocking on the head speculation that HP is going to turn itself into a software company.
In fact, going down through the list of things that she said, there is hardly a single item that does not contradict Leo Apotheker’s now-infamous statement last August that outlined a future of HP as a software company rather than the infrastructure and hardware giant it is.
And if some were not best pleased by yet another change in direction for HP, then it was only a few as, for the first time in 18 months, HP has told us all what it is going to do in the coming year.
It may not be pretty, but it certainly pleased investors, with stock rising by 1% directly after Whitman’s intervention, and promptly falling again by 3% as the news sank in that next year will be a tough year, not just for HP, but for the industry in general.
HP in Q4
But let’s get the money out of the way first. For a company that has been turning itself inside out for a long time, it hasn’t performed too badly.
Overall, sales fell 3% to US$ 32.1 billion, still topping analysts' forecasts of US$ 32 billion with net income for the fiscal fourth quarter, ending October 31 falling 91% to US$ 239 million.
In those results was a US$ 2.2 billion in one-time charges, including US$ 885 million in incentive programs to sell stock of webOS devices such as the TouchPad tablet. Without that charge, HP said it earned US$ 2.4 billion.
Results were boosted by a 9% sales increase in Brazil, Russia, India and China that partly made up for declines in the U.S. and Europe.
BIFF! BANG! Leo Apotheker
If it wasn’t talking billions here, the figures themselves would be by the bye as the market looked for some kind of indication of where HP would be going in the next 12 months.
From the beginning of the conference call, Whitman pinned her colors to the mast, and went on the attack against the vision that her predecessor announced in August.
She opened the conference with a clear definition of what HP is and will be in the future:
HP is the largest provider of IT infrastructure, software and solutions to individuals and businesses of all sizes. We're a leader in PCs, printers, servers, storage, automation and services."
BANG! Leo Apotheker.
We're in software to bring value to customers, not to transform HP into a software company."
BIFF! Leo Apotheker.
We’ve created confusion among many of our shareholders about what kind of company HP…We’ll be doing the hard work that will position us for consistent, profitable growth in 2013 and beyond.”
POW! Leo Apotheker.
No More Surprises
In effect, Whitman contradicted just about everything that was in the strategy outlined in August.
She aims to do all this by developing on the resources HP already has, and holding onto to reserves.
We need to be consistent; no more surprises…We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution."
What this means, she said, is that she will be sitting down with the “brains” in the HP operation and working out product strategies and development roadmaps, which will be publicized early in the New Year.
She said that the company was not in a position to rely on acquisitions alone, but that the company should be looking to its own R&D capabilities here.
No More Acquisitions, Nearly
The result is that, while she is standing by the earlier Autonomy acquisition, she said there would be not more buy-outs for more than US$ 500 million in the foreseeable future.
The idea is to keep cash and spur homegrown innovation, something that many observers and investors have been calling for months.
The final thing that needed to be addressed was the fate of WebOS, but on this she would not be drawn.
WebOS, which HP acquired with the US$ 1.2 billion acquisition of Palm, accounted for US$ 1.64 billion of the expenses in the figures and must have been a sore point after Apotheker announced that HP would be shelving its development.
Whitman would say nothing more than that a decision would be announced in early December, but that nothing concrete had been decided.
Could it be that with the inward-turning move towards HP’s own R & D that she announced one of the areas they will be looking at will be how to rejuvenate webOS? After all, the tablet market has yet to reach its potential, and there weren’t many critics of webOS even before its demise.
The statement in the figures seems to suggest that the biggest cost involved with webOS was winding it down:
Non-GAAP earnings and operating profit information excludes after-tax costs of $3.3 billion, or $1.56 per diluted share, related to the wind down of HP's webOS device business, impairment of goodwill and purchased intangible assets.”
However, that’s only speculation and, as many of the people involved with it are now no longer with HP, it might be too far of a jump.
It only remains to be seen now whether Whitman’s strategy works, or whether we will be introducing a new CEO this time next year.
That would, of course, be bad for HP, as the one thing the company needs at the moment is stability and “no more surprises." That said, it would not be the first time in the past 18 months that HP had done something incomprehensible.