(FROM THE WALL STREET JOURNAL 11/26/14)
By Shira Ovide
This is Meg Whitman's Hewlett-Packard Co.: Dramatically improved
profits and no revenue growth.
In her three years as CEO of the Silicon Valley pioneer, Ms.
Whitman's savvy management has led to higher profitability, more
cash in company coffers and greater confidence among investors. But
Ms. Whitman presides over a shrinking giant. Revenue has declined
for 12 out of the last 13 quarters, including a 2.5% decline in the
three months ended Oct. 31 compared with a year earlier, the
company said Tuesday.
Stagnant growth and fierce competition prompted Ms. Whitman to
announce last month a plan to break H-P in two. Her idea, which was
greeted warmly by much of Wall Street, is that two more-tightly
focused companies will be better able to navigate rapid shifts in
the industry. The half of H-P that Ms. Whitman is slated to run is
billed as the growth engine. The worry for her is that it's
not.
What will be called Hewlett-Packard Enterprise -- a collection
of products and services, including hardware, software, and
consulting, marketed to corporate customers -- posted a 4.7%
revenue decline in the fourth quarter. The company's old-guard
business lines in personal computers and printers, which will form
the second company, dubbed HP Inc., posted a scant revenue
increase. The breakup is expected to be completed by fall of
2015.
H-P said all the company's business segments improved their
operating-profit margin in the fourth quarter compared with a year
earlier, the first time H-P has managed that feat for a couple of
years.
"You have to give them credit for what they've done on
profitability," said Daniel Ives, an analyst who tracks H-P for FBR
Capital Markets. But, he added, "as much as the breakup is going to
change things strategically, their growth issues remain."
The big culprit in H-P's declining revenue was the company's
services arm, which largely comprises the EDS business acquired for
$13 billion in 2008. Revenue in that outsourcing and support
operation fell 6.9% from the same quarter a year earlier. H-P faces
a squeeze in that market between high-end consulting operations
like International Business Machines Corp. and software exporters
such as Wipro Ltd.
Ms. Whitman in an interview said the services business "is not
where we need that business to be," but she said there were hopeful
signs. She pointed to growth in new contracts signed in the fourth
quarter, for example, and strong growth in sales of new types of
consulting.
Ms. Whitman said she was encouraged also by a coming lineup of
new products in computer servers. H-P's sales of data-storage
equipment declined from a year earlier, she said, and she repeated
that "we have some work to do there." In a conference call with
analysts Tuesday, Chief Financial Officer Cathie Lesjak said the
data-storage business had "sales execution" problems.
Meanwhile, H-P's personal computer business, which Ms. Whitman
almost ditched three years ago, has become a star. Revenue from PCs
rose 4%, continuing several periods of rising quarterly sales. H-P
executives reiterated Tuesday that hardware sales are benefitting
from companies and consumers rushing to upgrade aging PCs.
Overall in the quarter, H-P reported net income of $1.33
billion, or 70 cents a share, down 5.9% from $1.4 billion, or 73
cents a share, a year ago.
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