Listening to Hewlett-Packard’s third quarter earnings call, you had to wonder if Meg Whitman was wishing she was somewhere — anywhere — else.
Nine months into her stint as Hewlett-Packard sixth CEO in seven years (that tally includes two interim CEOs), the company remains challenged by macroeconomic issues in China, the Americas and Europe and the Middle East – pretty much the whole world — and several HP-specific execution issues.
The company put out the really awful news — an $8 billion write-down on its Enterprise Services business – a few weeks ago, but there was plenty of new bad news to share on Wednesday’s call. For its third quarter, including that charge, HP logged an $8.9 billion loss — its biggest ever.
“Make no mistake … We are still in the early stages of a turnaround,” Whitman told analysts. But she, and CFO Cathie Lesjack (one of the past interim CEOs) insisted the turnaround is, in fact, underway. Some analysts might question that assertion. A few weeks ago, one of them called for the dismemberment of HP as the best way to wring the most value out of the company.
Here are the high- and low-lights of the call.
1: The PC business (still) stinks
HP’s view on the PC market seems to be: “This is one crappy business, but it’s our crappy business.” I guess if you’re the number-one PC maker, it’s tough to say goodbye. But HP came pretty close to selling or spinning off its Personal Systems Group (PSG) just a year ago.
PSG operating margins are 4.7 percent; consumer demand is soft and channel inventories are high ahead of the Windows 8 launch. Revenue fell 10 percent year over year. Blech. Dell’s third quarter earnings were similarly afflicted by tepid PC demand. Om Malik takes a look at HP and Dell’s combined woes here.
Whitman insisted the company is now fielding the best products it’s had in years — new ultrabooks, a Windows 8 tablet, and “tablets combined with laptops for the consumer space.” And that the reorg which combined HP’s printer and personal systems groups is improving logistics and the supply chain.
“We’re going to defend our number-one spot in this business,” Whitman said. This comes a year after the last HP CEO talked openly about selling or spinning-off the PC business.
2: Servers are a mixed bag
Revenue for the company’s Enterprise Servers Storage and Networking group fell 4 percent year over year, with revenue from industry standard or X86 servers down 3 percent.
But interest and opportunity in “Hyperscale” servers — new hardware running on energy-sipping ARM (or Atom) processors is a bright spot. Hyperscale is where HP has made the most progress, Whitman said, then acknowledging that business remains “dilutive” to overall server earnings.
3: 3Par rocks, but not hard enough
The company’s 3Par storage business was up a whopping 60 percent year over year. Six-Oh. And the company’s StoreOnce backup systems also saw double-digit growth. But that wasn’t enough to offset declines in EVA disk and tape storage revenue. Overall storage revenue was off five percent year over year.
4: Enterprise services = basket case.
HP installed a new acting chief of Enterprise Services early this month. But that’s just the beginning. Whitman called for an overhaul of how that group does business.
“Somewhere along the line … accountability … got diffused across the organization. And in the end, the person who leads these accounts needs to be in charge, have control of revenue and control of the costs,” Whitman said. And, the mix of services needs to shift from low-margin, low-end services – which “frankly EDS was founded on”, Whitman said – to higher-value strategic enterprise servcies in cloud, in security, in information optimization.”
The hope is that HP’s cloud offerings — including the new OpenStack-based HP Cloud Services – will help turn things around. HP is building big data solutions around Autonomy, Vertica, and converged infrastructure hardware towards this end.
5: Autonomy underwhelms
Autonomy, the $10.2 billion acquisition that was the villain of HP’s last earnings call, remains a work in process. Or, as Whitman put it, Autonomy “requires a great deal of attention.” That company’s enterprise search and analytics software was supposed to reinvigorate HP’s enterprise software business, but hasn’t come close.
HP launched a global dashboard to track Autonomy’s pipeline to help drive better and more predictable results, she said. In other words, Autonomy hasn’t come anywhere near pulling its weight.
6: It’s a bloodbath out there
Bottom line? HP still has to cut costs to compete — even in the lowly PC business. “We’ve got pricing pressure across-the-board, which means we need to adjust our cost structure to be able to compete,” Whitman said. “Sometimes, folks say to me, ‘Well, I’m sure the competitor’s losing money.’ Well, actually, they aren’t. And we need to make sure that we have a cost structure that allows us to be successful in all parts of the world in all of our businesses.”
The fact that more people than expected took HP’s buyouts may help — the company had expected 9,000 to leave this fiscal year, but the number will be more like 11,500.