Management, business issues weigh on HP

IDG News Service - Hewlett-Packard continues to struggle with leadership and business changes, reporting on Monday that fourth-quarter net earnings dropped 91 percent over last year.

The news comes just as Meg Whitman, former eBay chief, takes the helm at HP, reversing some decisions made by her predecessor, Leo Apotheker. She recently announced plans to keep HP's struggling PC business, after Apotheker had made plans to sell it or spin it off.

Net earnings for HP in its fourth quarter were US$200 million, down from $2.5 billion in the same period last year. Diluted earnings per share were $0.12, down 89 percent from $1.10 in 2010.

Net revenue dropped 3 percent in the fourth quarter to $32.1 billion, from $33.3 billion in the fourth quarter a year ago.

HP's software group performed the best during the quarter, boosted by growth in licenses and services, with revenue up 28 percent compared to 2010. Financial services revenue also did well, growing 18 percent.

Services revenue at HP grew 2 percent, hitting $9.3 billion for the quarter. But the company's enterprise servers, storage and networking group posted a 4 percent revenue decline over last year, and imaging and printing was down 10 percent year over year.

HP's personal systems group, which includes computers, declined 2 percent, to $10.1 billion. A month ago, HP did an about-face, announcing it would keep its PC business.

Executives on a conference call to discuss the results talked about a number of "headwinds" that slowed down growth for 2011 and are likely to continue to put pressure on the company in the future. The poor macroeconomic situation globally led to weak consumer spending all year and poor commercial spending in the final two quarters, Whitman said.

HP was also hurt by internal issues.

The leadership changes and announcements about major business changes had an impact. "There was a lot of drama in 2011," Whitman said. "We need to get back to putting our heads down and reduce the drama here."

Those business changes, including around the PC business, created a lot of uncertainty and confusion, she said. "I had partners tell us they thought we were getting out of hardware entirely," Whitman said. "We're in the software business to deliver value for customers, not to transform HP into a software company."

Going forward, HP results will reflect some other challenges. One is a shortage of hard disks as a result of the flooding in Thailand. "It's a terrible situation, and I'd say it remains dynamic," Whitman said. She has spoken to four of HP's major suppliers in the region, and "they don't have a complete picture of when they'll be back up and running," she said.