NEW YORK (TheStreet) -- Don't get too excited about Hewlett-Packard's (HPQ) earnings beat. Hidden behind the surprisingly good performance of HP's PC and hardware businesses in the first quarter was a sign that a strategic shift to build software and data analytics revenue is floundering.
Still, HP's announcement of a management overhaul and far weaker than expected results at Autonomy should remind investors that neither the short-term PC and hardware sales or the company's plan to layoff 27,000 workers will drive future growth. CEO Meg Whitman's success may hinge on getting more bang for HP's buck from the $11.7 billion it spent on British software giant Autonomy.
On Wednesday, Whitman said that Autonomy's head Mike Lynch will leave the company he founded and be replaced by Bill Veghte, HP's chief strategy officer, in a move that's expected to help improve the unit's performance and scale. In October, HP took control of Autonomy and said it would run the company independently, while keeping Lynch, who founded the firm in 1996, at the helm. The management turnover signals drastic change for Autonomy, a maker of software analytics that search unstructured data like emails, phone calls and social media.Whitman cited Autonomy's poor performance as reason to remove Lynch and further integrate the software specialist within HP's global sales force. "Autonomy had a very disappointing license revenue quarter with a significant decline year-over-year resulting in a shortfall to our expectations," said Whitman on HP's earnings call. Still, Whitman was optimistic about Autonomy, highlighting its cloud offerings, which had a "flood" of large sale leads. "Autonomy is a terrific product," Whitman said. "It's not the market, there is an enormous demand for Autonomy, it's not the competition," Whitman added, highlighting a need to better scale the acquisition. "When you try to go from $40 million to $400 million to $1 billion to $2 billion, boy it takes -- it's a whole different ball game." Whitman's closer alignment of Autonomy with core HP, and an overall restructuring and simplification of HP, mirrors the decade-ago turnaround of IBM that took shape through a strategy to quickly integrate acquisitions. Under new Autonomy head Veghte, Whitman said HP will try to better tie the software specialist to the company's existing services, server storage, networking businesses and its sales force, in an "organizational structure to support a $1 billion company."
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