No one expected HP’s Q2 results to be anything other than poor, but no one really expected an earnings dive of 32% with a fall-off in revenues of 10 percent. However, CEO Meg Whitman didn’t seem fazed, insisting that the figures were all part of the "multi-year journey" to recovery.
If it had been a company with less resources and less history than HP, her insistence that all this is in the plan might have been dismissed as the ravings of a CEO who has lost the plot completely as the company sinks, especially given that this is the seventh consecutive quarter of weak HP figures.
But it’s not. It’s HP and it still has a lot of power under the hood. Over the past three months it has also shown signs that the recovery process is not being left to luck, but is dependent on a road-map that contains lots of new product releases across all its business units, even if HP hasn’t made that road-map public.
Certainly, if no one else is convinced that HP is heading up the high road, at least the financial markets are, and when all is said and done that’s what this is really about -- convincing investors that the "multi-year" plan is going to work.
In afterhours trading HP stock rose by more than 13% with many analysts agreeing that that results could have been worse. This was despite the fact that there were a couple business units on the balance sheets that really did badly like PC sales which have really tanked with a drop of 20% year-on-year, or notebooks shipments down 24% on the year.
Whitman at HP
There is also the confidence factor, which doesn’t take much interest in comparing quarters, but looks at the financial future of the company over the coming years.
Here, Whitman is able to cite three things that haven’t been in the mix before: 1) Autonomy finally has a planned future in the hands of the experienced Robert Youngjohns with numerous Autonomy-HP projects on the cards. 2) She has taken hard decisions over the past year to cut back on costs. 3) Her pervious assertion that HP would recover on the back of innovation is not just hot air and is manifesting itself is some pretty neat product releases.
So when she asked the markets last night to stick with, they seemed only too happy to do so:
I am encouraged by our performance in the second quarter, and I feel good about the rest of the year. As I have said many times before, this is a multi-year journey. We have a long way to go, but we are on track to deliver on our fiscal 2013 non-GAAP diluted earnings per share outlook,” Whitman said.
In a break down of where HP is at this point in the "multi-year journey," its figures look like this:
- HP's revenue totaled US$ 27.6 billion down 10% on the year with earnings of US$ 1.1 billion down 32% from US$ 1.6 billion last year.
- Personal Systems down 20% year over year Total units were down 21% with Desktops units down 18% and Notebooks units down 24 percent.
- Printing revenue declined 1 percent. Commercial hardware units were down 5% year over year, and Consumer hardware units were down 13 percent.
- Enterprise Group revenue declined 10 percent. Networking revenue was up 1%, Industry Standard Servers revenue was down 12%, Business Critical Systems revenue was down 37%, Storage revenue was down 13% and Technology Services revenue was down 3% year.
- Enterprise Services revenue declined 8% with application and business Services revenue down 10 percent.
- Software revenue was down 3% with support revenue up 12 percent. License revenue was down 23% and services revenue was down 5 percent.
While there are a couple of business units here that could be doing better, there is a lot there that can be explained by external factors, particularly a weak global economy that has seen many businesses putting off investment in infrastructure and new products until economies start moving again.
Even with analysts watching HP carefully over the coming quarter to see if the fledgling market confidence is still there, it will only be over the coming years that recovery will become apparent.
In the meantime, Whitman has a lot to do with 29,000 layoffs on the cards in the coming year, cost cutting around unprofitable units, the development of new markets like enterprise computing services, and turning Autonomy into more than a black hole for cash. Lots more to come here.
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