* Whitman blames executive turmoil for slow turnaround
* Promises visible recovery only beginning in fiscal 2014
* Enterprises services unit seen barely profitable in 2013
By Poornima Gupta
SAN FRANCISCO, Oct 3 Hewlett-Packard Co's
shares plunged to a nine-year low on Wednesday after
Chief Executive Meg Whitman warned of an unexpectedly steep
earnings slide in 2013, with revenue set to fall in every
business division except software.
Wall Street had hoped for quicker signs of progress on
Whitman's turnaround plan, which centers on transforming the
former industry powerhouse into an enterprise computing
corporation that can take on IBM and Dell Inc.
Whitman, who took the helm of HP just over a year ago after
a failed bid to become governor of California, told investors
that the company's recovery will start to become visible only in
fiscal 2014, when investments begin to pay off.
She blamed unprecedented executive turnover in past years
for dragging out the Silicon Valley company's turnaround.
Analysts say HP is struggling to shore up its credibility on
Wall Street while battling crumbling margins in an increasingly
cut-throat PC arena, tapering-off of IT spending, and an
internal organizational overhaul that involves thousands of
"I was surprised that nothing new was really said in terms
of strategy, and the problem here is there is lack of investor
confidence in the current strategy," said Shaw Wu, an analyst
with Sterne Agee.
Shares of HP, the largest U.S. technology company by sales,
tumbled 13 percent on Wednesday in the biggest single-day
decline since August 2011.
HP gave a particularly gloomy outlook for enterprise
services, its business providing services to corporations and a
key component of Whitman's rescue plan.
Revenue from that division will dive 11 to 13 percent in
fiscal 2013 and be barely profitable, with operating margins of
zero to 3 percent. That stands in stark contrast to IBM,
which raised its full-year earnings outlook, reflecting its
ability to manage costs, despite flat software revenue in the
second quarter and a 2 percent decline in services.
Whitman became HP's third CEO in as many years after taking
over following Leo Apotheker's abrupt dismissal just over one
year ago. She is trying to revitalize the former industry icon
via layoffs, cost cutting, and expansion into areas with
longer-term potential such as enterprise computing services.
"The single biggest challenge facing Hewlett-Packard has
been changes in CEOs and executive leadership, which has caused
multiple inconsistent strategic choices, and frankly some
significant executional miscues," Whitman told the investor
conference in San Francisco.
"This is important because as a result it is going to take
longer to right this ship than any of us would like," she added.
HP has lost more than two-thirds of its value since 2010,
when its capitalization topped out at about $104.5 billion.
Squeezed by crumbling demand for personal computers in a mobile
era, significant leadership turbulence, and the advent of Apple
Inc's iPad that year, HP's stock embarked on a steady decline.
The company now has a market value around $30 billion.
Since Whitman took the helm in September 2011, the stock has
fallen about 35 percent.
HP has suffered through years of turbulence. Apotheker's
11-month tenure was marked by an acceleration of departures from
various divisions, such as networking chief Marius Haas, as he
brought in former coworkers from SAP AG.
Apotheker's predecessor, Mark Hurd, who is now president of
Oracle Corp, also departed abruptly, after a sexual
HP, like rival Dell, is trying to transform itself into a
major enterprise computing provider in the mold of IBM, while
slashing expenses to boost the bottom line. Shares of Dell, the
No. 2 U.S. PC maker after HP, fell 4.7 percent on Wednesday,
mired near nine-year lows.
HP is laying off 29,000 employees over the next two years
and has written off $10.8 billion mostly related to the
writedown of its EDS services business. Meantime, its business
continues to be hit by a slowing in corporate spending and
personal computer demand worldwide.
For 2013, the company forecast overall earnings, excluding
restructuring charges and other items, at between $3.40 to $3.60
a share in fiscal 2013. That's well below the average forecast
by Wall Street analyst of $4.18, according to Thomson Reuters
A large part of the shortfall rests on the projected plunge
in enterprise revenue, a division that sells myriad services to
businesses and has seen an erosion in profitability.
Operating profit fell 22 percent in the July quarter,
surpassed only by a 28 percent slump in personal computers.
Mike Nefkens, HP's acting global enterprise leader ,said
fiscal 2013 "will be a fix and build year."
"We expect long-term growth to be back in the 3-5 percent
range and long-term profit to be in the 7-9 percent range," he
The heads of other business units also addressed Wednesday's
conference, touting both new products and challenges facing the
HP is battling formidable rivals on several fronts,
particularly in cloud, or remote computing, products and
services, with Oracle and IBM aggressively courting corporate
customers. China's Lenovo Group Ltd may overtake HP as
the world's biggest PC seller this year.
Whitman vowed to reduce the number of product offerings and
to cut costs as HP tries to recover in a worsening
macro-economic environment. She has said it will take five years
for the turnaround to be effective.
"All of this is fixable but it is going to take some time,"
She said HP eventually will have to compete in the
smartphone market, but stopped short of laying out a plan and
said there were no plans to introduce a smartphone in 2013.
Longer term, HP expects "to be a GDP-like growth company
with key pockets of higher growth," said Cathie Lesjak, HP's
chief financial officer.
Its stock closed down 13 percent at $14.91 on the New York