HP is still waiting for a change in its fortunes, according to last night's Q3 figures. They showed weak profits, poor PC sales, its crucial Enterprise Group down 9% and prompted CEO Meg Whitman to admit there will be no turnaround in 2014.
On top of this, in keeping with a long established tradition with large, underperforming companies, she reshuffled the C-Level layer and … well, that’s it. There is no ambitious plan to restructure as we recently saw in Microsoft, or indications of possible business sell-offs, even if there are plans to lay-off 29,000 workers by the end of 2014.
No Turn-Around in 2014
To be fair to Meg Whitman, there doesn’t appear to be a lot she could have done over the past three months. The long awaited global economic turnaround is taking longer than expected and enterprise budgets remain tight.
But it does beggar the question as to how many years there might be in the “multi-year” turnaround strategy discussed during a number of previous quarter's earnings calls.
Is a “multi-year turn around” two years, three years, five years, longer? It seems unlikely that shareholders will be impressed if she doesn’t offer some clear indications of when the turning point will be reached. This is particularly true now that shareholders have already drawn first-blood by bringing HP to court over the blundered Autonomy deal, even if the technologies acquired in that deal are starting to emerge as new and interesting products.
Indeed, shareholders’ sentiment is not likely to be improved by the news that there is unlikely to be any improvement in sales over fiscal 2014:
What has changed about 2014's outlook is a couple of things — Enterprise Group's performance especially during the quarter … Weak execution has amplified the market challenges we know exist."
"It's unlikely … that we'll see the growth in 2014 that I had hoped,” Whitman said during a conference call.
HP’s Q3 Earnings
All this, though, is likely to have crossed Whitman’s mind before the earnings release. However, if the numbers were poor, they were in keeping with the figures from other tech giants that have also upset the markets by not meeting expectations.
Investors punished all of them with a drop off in share price, albeit temporary, and HP was no different. In after hours trading the share price dropped 8% immediately, though it recovered later to 2.5% lower than then the starting price.
Much of the decline is being blamed this morning on the poor performance of the Enterprise Group, which Whitman sees as one of the pivotal points in the HP turnaround as she looks to turn HP into a services provider — among other things — that can compete with the likes of Cisco or IBM. However, Whitman remains optimistic:
I remain confident that we are making progress in our turnaround. We are already seeing significant improvement in our operations, we are successfully rebuilding our balance sheet, our cost structure is more closely aligned with our revenue and we have reignited innovation at HP, with a focus on the customer."
Overall revenues hit US$ 27.2 billion with net income of US$ 1.4 billion as opposed to a loss of US$ 8.9 billion for the same quarter last year when it had to take a write-down of US$ 8 billion on the back of the 2008 EDS buy for nearly US$ 14 billion. Segment by segment things weren’t much better:
- Personal Systems: Revenues were down 11% over the year, with consumer revenues down 22%, business revenue down 3%, desktop units down 9% and Notebooks down 14%
- Printing: Down 4% on the year
- Enterprise Group: Revenues down 9% with networking flat, server revenues down 11%, business critical systems down 26%, storage was down 10% and technology services down 7%
- Software: Revenue was up 1% with support revenue up 4%, license revenue was flat, professional services revenue was down 11% and SaaS revenue was up 4%.
HP Boardroom Shuffle
So while the figures were generally grim there was one notable high point in the software revenue figures, pointing to a direction that HP might take. But it already had that conversation two years ago and Leo Apotheker was obliged to leave the company as a result.
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