HP’s Whitman Warns On Growth After Sales Slump

Hewlett-Packard has revealed more setbacks in its latest quarterly financial results, as CEO Meg Whitman says the multi-year turnaround continues to move forward.

Yet there was also some good news after the company posted a healthy profit for the quarter. However Whitman tempered this with an ominous warning about HP’s growth prospects.

Growth Warning

In its fiscal third quarter, HP posted net income of $1.39 billion (£891m), which was a significant increase from the $9.8 billion (£6.3bn) loss from a year ago, that was due in large part to a significant write-down HP took for its $13.9 billion (£8.9bn) acquisition of services company EDS in 2008.

But there was less good news on the sales side, as third quarter revenues slumped to $27.2 billion (£17.4bn), down from $29.7 billion (£19bn) in the same period in 2012. HP was hammered by the contracting global PC market, and its Enterprise Group also struggled with a competitive market and execution missteps.

Given the financial numbers, Whitman – who had been hopeful of growth in fiscal year 2014 – told analysts and journalists on a conference call 21 August that she no longer expected year-over-year revenue increases for the year.

She noted that some HP businesses – including printers, enterprise services and software – had a strong quarter, though revenues were down in every segment except software. However, much of the focus fell on the PC business and Enterprise Group, which is responsible for the company’s broad server, storage and networking offerings.

Enterprise Disappointment

The continued decline in the Personal Systems Group’s numbers – revenue fell 11 percent, including a 22 percent drop in consumer PCs – was not surprising, given the quarters-long slowdown in PC sales worldwide as consumers and business users migrate to mobile devices like smartphones and tablets.

However, Whitman said the performance of the Enterprise Group was “very disappointing,” and said that while there were some external issues, including softness in Europe and China, impacting the financial numbers – particularly in such areas as industry-standard servers and some storage products – much of the problems had to do with execution.

“Overall, the enterprise group’s performance was very disappointing,” she said during the conference call. “Mainstream server weakness was driven by execution challenges, competitive pricing and a misaligned go-to-market model. This impacted our revenue and profitability. The net impact of these execution challenges is an expected loss of five points of market share on a revenue basis.”

To help fix those problems, Whitman is bringing in a new executive to oversee the Enterprise Group. Dave Donatelli was reassigned within the company, and COO Bill Veghte will take over. She noted Veghte’s experience in both software and sales as key assets for the business unit.