HP Swallows $8.9B USD Loss, But Analysts Praise Its Revamp Work
August 23, 2012 3:33 PM
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EDS hit was expected due to troubled integration and move away from low end services
When Hewlett-Packard Comp. (
hired Léo Apotheker
as its new CEO shortly after his firing from SAP AG (
cost his former employer $1B USD
for allowing the theft of code from rival Oracle Corp. (
), 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. (
chief executive Meg Whitman
, HP has
slowly worked to unwind
those plans and recover financially.
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.
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
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, 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. (
whose revenue plummeted by 22 percent
Both firms have struggled to keep up with the "young guns" -- Asian OEMs Acer, Inc. (
), Lenovo Group, Ltd. (
), and ASUSTek Computer, Inc. (
). The former two, in particular have posted double digit growth over the last quarter, while the American OEMs posted double digit declines.
This article is over a month old, voting and posting comments is disabled
8/24/2012 12:34:54 PM
What they are doing is getting rid of experience and expertise. Many IT customers will follow their favourite techs and HP will lose their business. And once you lose a loyal customer it is almost impossible to get them back.
"This week I got an iPhone. This weekend I got four chargers so I can keep it charged everywhere I go and a land line so I can actually make phone calls." -- Facebook CEO Mark Zuckerberg
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