HP facing long road ahead for CEO's turnaround

Computer maker's sales are still slumping amid weak demand for enterprise hardware

PUBLISHED : Thursday, 22 August, 2013, 10:37am
UPDATED : Friday, 23 August, 2013, 3:03am

The roadblocks to Hewlett-Packard's turnaround are mounting.

Meg Whitman, hired as chief executive almost two years ago to revive the storied Silicon Valley computer maker, had said revenue would rise next year as sales of personal computers stabilised. She scrapped that prediction on Wednesday.

PC shipments are slumping for longer than Whitman had foreseen, there is weak demand for enterprise hardware and services, and Dell and other competitors are siphoning away sales with aggressive pricing. Cost-cutting is also reaching its limit amid a move to eliminate 29,000 jobs.

Whitman is still facing hurdles after three years of write-offs, management upheaval, strategy shifts and slowing growth.

"The signs are clear that 80 per cent of their business will have headwinds in fiscal 2014 - that's PCs, printers, and services," said Abhey Lamba, an analyst at Mizuho Securities USA who has an underperform rating on the shares, the equivalent of a sell.

Whitman took the helm in 2011, asking investors to be patient and scaling back her predecessor's growth projections, which she said were too cheery. The stock had risen 78 per cent this year on signs that a turnaround might be taking hold.

Results for the fiscal third quarter showed revenue declines across most of HP's businesses, and the firm's forecasts for the period until the end of October fell short of some analysts' estimates.

Earnings excluding some items will be 98 US cents to US$1.02 a share for the fiscal fourth quarter ending in October, the company said on Wednesday. Analysts were predicting US$1.01 on average, according to Bloomberg data. For the 2013 fiscal year, earnings will be US$3.53 to US$3.57 a share, compared with the company's previous forecast of US$3.50 to US$3.60.

In a conference call with analysts, Whitman cited a "weak enterprise spending environment", with sales challenged in Europe and China. Pointing to difficulties in HP's enterprise and PC businesses, she now projects that "year-over-year revenue growth in fiscal 2014 is unlikely". Whitman had previously said she expected sales growth in the next fiscal year.

PC shipments fell in the second quarter for the fifth straight period, sliding 11 per cent, market researcher Gartner said last month. Consumers are increasingly opting for tablets instead of traditional desktops and notebooks, and businesses are holding on to their old machines for longer.

For the fiscal third quarter, which ended in July, sales fell 8 per cent to US$27.2 billion, compared with analysts' average estimate of US$27.3 billion. Net income was US$1.39 billion, compared with analysts' US$1.19 billion estimate.

Sales in the group that includes PCs fell 11 per cent to US$7.7 billion. Hewlett-Packard is missing out on three of the biggest trends in technology: the rise of smartphones and tablets, businesses' move to online computing services from on-site hardware and software, according to Bill Kreher, an analyst at Edward Jones & Co, who rates the shares a sell.