Hewlett-Packard’s record loss shows challenge facing CEO Whitman

Defending Position

Even as she avoids chasing Apple on the consumer side, Whitman said she plans to defend Hewlett-Packard’s leadership in the larger market.

“We’re going to defend our No. 1 position” in PCs, Whitman told analysts. Lenovo Group Ltd. has almost caught up with Hewlett-Packard as the world’s top PC supplier.

Profit excluding costs was $1 a share and sales were $29.7 billion in the third quarter ended July 31, matching analysts’ predictions. The per-share figure also met Hewlett-Packard’s forecast. Earnings excluding some items for the fiscal year ending in October will be $4.05 to $4.07 a share.

Results were affected by global economic weakness as customers take longer to agree to purchases, Chief Financial Officer Cathie Lesjak said in an interview.

Challenging Environment

“It was a tough, challenging economic environment,” she said. “The amount of time it takes to close deals is lengthening.”

One bright spot was sales of servers aimed at helping consumer Internet companies handle the rising tide of data coursing through user-profile pages.

“It’s where all the growth in the market is,” Whitman said on the conference call.

Third-quarter revenue declined 3.1 percent to $8.75 billion in services and slumped 2.7 percent to $6.02 billion in printers. Sales also slipped in the servers, storage and networking unit. Software climbed, increasing 18 percent.

In services, IBM has emulated the more efficient models of rivals such as Wipro Ltd. and Tata Consultancy Services Ltd. by staffing up in India, said Lamba, who has a neutral rating on the shares. Hewlett-Packard hasn’t done so, he said.

Cutting Jobs

Whitman is cutting 27,000 jobs over two years and plans to invest in areas including security, cloud computing and data- analysis software. She’s also dismantling the acquisitions of Electronic Data Systems Corp. and Palm Inc., which were made by Mark Hurd, who was CEO from 2005 to 2010.

The company had said on Aug. 8 that third-quarter profit would be $1 a share. The company also said at the time that it would write down the value of its enterprise-services business by $8 billion, and take a higher-than-expected $1.5 billion to $1.7 billion charge for early retirement packages offered to workers.

The company is eliminating 10,000 to 15,000 jobs from the enterprise-services unit as part of the job cuts. The writedown reflects the dwindling value of EDS, bought by Hurd for $13.2 billion in 2008.

About 11,500 workers will leave Hewlett-Packard by the end of October, and the company plans to spend the savings on new software for its employees, cloud computing services, and “rainy day funds” to help bolster profits, Whitman said in the interview.

Whitman became CEO in September.

Bloomberg News

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