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EDS hit was expected due to troubled integration and move away from low end services

When Hewlett-Packard Comp. (HPQ) hired Léo Apotheker as its new CEO shortly after his firing from SAP AG (ETR:SAP) and cost his former employer $1B USD for allowing the theft of code from rival Oracle Corp. (ORCL), we warned that a rocky road could be ahead for the veteran PC maker.  Sure enough, Mr. Apotheker lived up to the miserable expectations his history would suggest, punching his ticket to a second firing in just a year.  Unfortunately that did not save HP from a sordid mess of missed financial targets and crackpot schemes such as Mr. Apotheker's plan to sell HP's core personal computer business.

I. HP Takes Expected Hit From EDS

Under the new leadership of former eBay, Inc. (EBAY) chief executive Meg Whitman, HP has slowly worked to unwind those plans and recover financially.

HP's recovery hit an expected bump in the road when it was forced to write off $10.8B USD from its acquisition of Plano, Texas-based Electronic Data Systems (EDS), a top information technology equipment company acquired during the Mark Hurd era for $13.9B USD.  

EDS Texas sign
HP's EDS acquisition was the source of a big hit. [Image Source: AP Photo]

The EDS hit is attributable to a variety of factors -- demand weakness in the IT sector, underlying structural issues at EDS, and the recent global recession.  But a part of the failure is also arguably attributable to Mr. Apotheker's poor management which left the branded HP Enterprise Services struggling.  HP is also moving away from the low-end corporate services that EDS specialized in.

With 300,000 employees, HP remains the world's largest maker of personal computers.  But sliding revenue has forced the OEM to commit to the largest layoffs in its history.  In its fiscal Q3 2012, it shed 4,000 jobs, part of 11,500 jobs it is expected to drop before the year's end.

II. HP Aims for Predictability Amid Sliding PC Sales

HP's fiscal Q3 2012 revenue came in at $29.7B USD -- just slightly below the $30.1B USD average expectation of a Thomson Reuters I/B/E/S survey of analysts, whose expectations were based on HP's released earnings targets.  That narrow miss was much closer to the analyst and earning target expectations than most of the results of the Apotheker era.

Comments Ms. Whitman, "We are still in the early stage of the turnaround. There will be challenges ahead that could create some variability in performance.  But I'm confident in our ability to work through them and get to where we want to be."

Sterne Agee analyst Shaw Wu agrees, telling Reuters that despite the loss there's reason for positivity.  He remarks, "HP is definitely showing progress in terms of turning around the company." 

HP lowered expectations for the rest of the year, towards the lower end of its previous target range.  The PC maker is experiencing currency and demand issues in the European and Asian markets (particularly China).

HP wide
HP, like Dell, has struggled to compete with younger Asian OEMs. [Image Source: HP]

While all of HP's units reported lower revenue, the PC business was the worst hit.  Its revenue dropped 10 percent to $8.6B USD, which was still quite a bit better than rival Dell, Inc. (DELL) whose revenue plummeted by 22 percent.

Both firms have struggled to keep up with the "young guns" -- Asian OEMs Acer, Inc. (TPE:2353),  Lenovo Group, Ltd. (HKG:0992), and ASUSTek Computer, Inc. (TPE:2357). The former two, in particular have posted double digit growth over the last quarter, while the American OEMs posted double digit declines.

Source: Reuters



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oy... 8.9b
By retrospooty on 8/23/2012 4:13:27 PM , Rating: 0
Fallout from piss poor management over the past decade, topped off with the piss poorest corporate level decision making I have ever seen (other than RIM) from ex CEO Leo Apotheker . HP's board is really to blame. They keep hiring dinkus after dinkus. I am going to go out on a limb and assume Meg Whitman is also a dinkus, otherwise HP's board wouldnt have liked her for the job.




RE: oy... 8.9b
By Argon18 on 8/23/12, Rating: 0
RE: oy... 8.9b
By retrospooty on 8/23/2012 5:36:46 PM , Rating: 2
LOL... Dont forget RIM.


RE: oy... 8.9b
By astralsolace on 8/24/2012 11:05:17 AM , Rating: 1
Ironically, GM used to own EDS (HP Enterprise Services), and they bought themselves back from GM before being bought by HP.


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