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HP plots its recovery

Little drama over $8.9B loss as company begins to move past its restructuring

August 23, 2012 06:00 AM ET

Computerworld - In its 73 years, Hewlett-Packard has had bad quarters, but perhaps none like the one it posted Wednesday. Its $8.9 billion loss was huge, but there was little drama about it.

HP's CEO, Meg Whitman, is already deep into a corporate restructuring, and so investors were well prepared.

HP this month took an $8 billion charge against its services division, all stemming from its $13.9 billion acquisition of EDS in 2008.

This writedown was just the latest, and perhaps the last, big thing that HP needed to accomplish to get out of its swamp. Third quarter revenue was $29.7 billion, a 5% decline.

"Make no mistake about it, we're still in the early stages of a turnaround," Whitman told financial analysts.

In March, HP combined its PC and printer business, and in May it announced plans to eliminate 27,000 jobs. The company had said earlier that 9,000 employees would be gone by the close of its fiscal year, Oct. 31, but it now says 12,000 will exit by then, thanks to better than expected acceptance of an early retirement package.

In the call with analysts, Whitman outlined some of the areas that will be important to the company, and that includes the migration to Windows 8.

Personal systems group revenue was down 10%. That includes PC and laptops, but HP has tablets ready for the soon-to-be-released Windows 8, as well as PCs that will double as tablets, said Whitman.

Charles King, an analyst at Pund-IT, said PC makers are under continuing pressure from smartphones and tablets, as well as consumers holding back PC spending in expectation of Windows 8.

"Toss in generally weak financial performance across global markets, and it's pretty much a perfect storm for companies like HP," said King. On the server side, HP is putting a lot of effort into the high-end of the server market, particularly so-called hyperscale computing, which involves using low energy chips and scale-out architectures for cloud, web and supercomputing uses, Whitman said.

The battle with Oracle over new development on the Itanium platform has hurt its business critical systems, say analysts. Exactly how HP will handle its Itanium platform, its Unix operating system, HPUX, and what role x86 systems will have in the years ahead in relation to those products, has not been clearly explained.

Crawford Del Prete, an analyst at IDC, said that HP needs to get through the Windows 8 transition as well as fix its services division.

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

Nonetheless, while the long-term prospects for Itanium are limited, Del Prete said its installed base will continue buying upgrades, and he doesn't see the questions about the Itanium platform affecting HP's x86 server business.

HP "is one of the lowest cost producers of x86 servers, and that business is going to continue to be a relatively decent margin business for the company," Del Prete said.

HP's software revenue was up 18% this quarter, and Whitman emphasized the product integration as key reason for it. This was illustrated, in particular, with its acquisitions last year of Autonomy, an information management software firm, for $10.3 billion, and Vertica, a data warehouse and analytics vendor, also acquired last year, for an undisclosed sum.

HP's cloud systems business is expanding, and Whitman said it now has 750 unique customers.

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