This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Hewlett Packard's Whitman May Write Off Transformation

The EDS mega-deal and a 2001 merger with Compaq helped to usher out previous HP CEOs Mark Hurd and Carly Fiorina, causing billions in writedowns and leaving HP vulnerable to rapid commoditization in PCs, printers, laptops and IT hardware.

In third quarter earnings, HP's software unit -- the division where Autonomy resides -- reported flat sequential revenue growth and profits of $973 million and $175 million, respectively, as operating margins remained below 20% (where they had been in the first quarter before beginning a decline). The results signal slow progress by Whitman as she tries to impart her strategic vision on HP, which remains the world's largest PC maker.

Topeka Capital markets analyst Brian White had expected the unit to see sales increase 2% from the second quarter, while its services unit was expected to grow just 1%. In third quarter earnings, software sales of nearly $1 billion and services sales of $8.8 billion -- a 3% year-over-year decline -- both missed Wall Street estimates.

Overall revenue of $29.7 billion slightly missed analyst estimates, while HP's $1 in earnings per share beat an updated Aug. 8 guidance of between 94 cents and 97 cents in EPS. Shares closed down over 8% on Thursday hitting new 52-week lows.

"Autonomy still requires a great deal of attention and we've been aggressively working on that business," Whitman said in the company's third quarter earnings call.

Whitman is taking aggressive action to try and salvage the company's software unit and its services unit, where EDS resides.

HP overhauled management at Autonomy after the data analytics specialist posted far weaker than expected results in the second quarter -- marking a big change of course in the company's software and services push.

Whitman ousted celebrated Autonomy founder Mike Lynch and replaced him with Bill Veghte, HP's chief strategy officer, in a move to bolster the unit's performance.

When HP first took control of Autonomy last fall, it planned to run the company independently, keeping Lynch, who founded the firm in 1996, at the helm. However, after poor results, Whitman decided to remove Lynch and further integrate the software specialist within HP's global sales force, where the business could scale faster.

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.

Still, the drastic management change for Autonomy, a maker of software analytics that search unstructured data like emails, phone calls and social media, was a first troubling sign as to whether HP will get a bang for its buck on the deal.

Third quarter earnings signal that support is still needed.

In particular, earnings did little to reverse a trend of falling profit margins and a growth slowdown at HP's software and services units, an integral piece of any transformation.

HP's software license growth fell to 2% in the third quarter from 7% in the second quarter and from 12% in the first, while the unit's operating margins rose to 18% after dropping to 17.7% in the second quarter (margins were 20% in the first quarter).

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ACN $96.70 0.63%
HPQ $33.62 0.70%
IBM $172.02 1.10%
DELL $0.00 0.00%
AAPL $131.97 1.80%

Markets

DOW 18,162.32 +120.78 0.67%
S&P 500 2,121.90 +17.70 0.84%
NASDAQ 5,098.1190 +65.3680 1.30%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs