Hewlett-Packard plans a comeback

CEO Meg Whitman insists that HP is in the 'early stages of a turnaround' despite its dismal third-quarter results.

Hewlett-Packard has had some bad quarters in its 73 years, but perhaps none as bad as its latest -- when it reported a loss of $8.9 billion on sales that fell 5% to $29.7 billion.

The poor third-quarter results produced little drama on Wall Street, because CEO Meg Whitman had prepared investors for a disappointing performance by launching a massive corporate restructuring earlier this year.

In March, HP said that it would be combining its PC and printer businesses; in May, it announced plans to cut 27,000 jobs; and early last month, the company took an $8 billion charge against its services division, which has struggled since HP's $13.9 billion acquisition of EDS in 2008.

"Make no mistake about it, we're still in the early stages of a turnaround," Whitman said during the company's quarterly conference call with financial analysts.

During the call, Whitman revealed some product plans she expects will get the company back on track.

For example, HP's struggling Personal Systems Group, whose sales plunged by 10% in the quarter, is focusing on a migration to Microsoft's new operating system, Windows 8, and on the development of PCs that can double as tablet computers, Whitman said.

HP is also putting a lot of effort into developing high-end servers, particularly for so-called hyperscale computing, which involves using low-energy chips and scale-out architectures for cloud, Web and supercomputing uses, she added.

Industry analysts say that despite Whitman's efforts, HP will continue to face significant challenges in all of its businesses for an extended period of time.

Charles King, an analyst at Pund-IT, noted that competition from smartphones and tablets will continue to put pressure on the Personal Systems Group, which sells mostly PC gear.

Moreover, he noted that many consumers and businesses looking to buy PCs are postponing any spending until the launch of Windows 8, which computer makers hope will happen in time for the 2012 holiday shopping season.

"Toss in generally weak financial performance across global markets, and it's pretty much a perfect storm for [PC] companies like HP," King said.

Some financial analysts are reportedly still suggesting that HP spin off its PC business -- an idea floated by former CEO Leo Apotheker before his ouster last year; some say the decision to find a new CEO was related in part to the PC plan.

That idea faces a chorus of criticism, with many observers expressing concern that China-based Lenovo would be a likely buyer. A Lenovo acquisition of HP's PC unit could threaten the U.S.'s position as a global technology leader, they say.

Analysts also note that despite a recent court victory, HP's legal battle with Oracle over new database and application development on Intel's Itanium chips, widely used in HP systems, has hurt business.

Although a California court ordered Oracle to continue porting its software to Itanium, IDC analyst Crawford Del Prete said "one could argue that the damage has already been done with customers -- it has created a lot of uncertainty around the platform."

Del Prete also said it's critical that HP shore up its services unit, where Mike Nefkens was named acting chief, replacing John Vistenin, who departed "to pursue other interests," according to the company. Vistenin was hired by Apotheker during his short, rocky run atop the U.S. tech icon.

Chris Kanaracus of the IDG News Service contributed to this story.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

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