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Meg Whitman Asks For Patience As HP Changes Course

Posted on Wednesday, Mar 7th 2012

HP’s troubles just don’t seem to be ending. Although the company may have remained the market leader in global PC shipments last quarter by shipping more than 15 million units, sales for the quarter were 16% below the previous year’s sales. IDC and Gartner estimate that last quarter, overall PC shipments fell 0.1% over the year to 92.7 million units. To add to HP’s worries, declining revenues are hurting margins and the stock price.

HP’s Financials
HP’s (NASDAQ:HPQ) Q1 revenues dropped 7% over the year to $30 billion, falling short of the market’s expectations of $31 billion. Their EPS fell 44% over the year to $0.73 of $1.17. However, non-GAAP EPS of $0.92 was above the Street’s target of $0.87.

HP’s Personal Systems Group revenues fell 15% over the year owing to fewer shipments. Within the segment, consumer client revenues fell 25%, while commercial client revenues fell 7% over the year. Services group revenue grew 1% over the year, while Imaging and Printing revenues were down 7%. Enterprise division revenue fell 10% driven by flat networking sales, an 11% decline in server revenues, and a 6% drop in storage revenues.

During the quarter, HP bought back 29 million shares at a total of $780 million.

HP’s webOS
After reconsidering their decision to shut down the webOS unit, HP seem to have decided to keep it going, albeit at a smaller scale. The company plans to continue developing for the unit, and is also going to offer their webOS as an open source platform. They already announced plans to cut 275 jobs in the unit to reduce costs. The company is also working on developing a Windows 8 Tablet scheduled for launch next year. Market rumors suggest that they are working on two designs right now, one with Intel and another with an ARM processor for the new tablet.

HP Moving into Cloud Computing
To offset declining consumer computing and printing revenues, HP is working to expand their presence in cloud computing. Recently, they introduced a Security Intelligence and Risk Management platform to help manage security concerns in the cloud and on mobile devices. Through the platform, cloud providers will be able to integrate their customer’s applications and infrastructure on the cloud. The tool is expected to be HP’s major product bringing together the capabilities they acquired when they bought ArcSight, Fortify, and TippingPoint over the past few years. The platform comes with enterprise-level dashboards and helps organizations better identify application security threats and protects their mobile computing segment as well.

HP’s stock is trading at $24.17 with a market capitalization of $47.95 billion. It touched a 52-week high of $43.45 in March 2011.

HP’s new CEO, Meg Whitman, has her task cut out for her. Analysts believe that Mark Hurd had already made the organization very lean, and managing costs from here on out will not be easy. In her recent earnings call, Whitman has already requested analysts to be patient with the stock as HP rebuild their balance sheet. For now, by expanding into the cloud, she is diverting the company’s resources from the declining print and personal computing divisions.

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