Tuesday, November 24, 2009

What is Next for Hewlett-Packard?

Mark Hurd knows best how to take cost out of business. Accordingly, during his tenure, HP has taken on a mission of buying/consolidating industries while ruthlessly cutting costs. The strategy seems to be paying off in PC and Services. In my opinion, he needs to badly restructure the printer business by reshuffling executives of the division, hiring in an industry veteran with track record in high-end production and digital publishing, outsourcing all print engine manufacturing to Canon, putting EDS commerically in lead over printer division’s sales force and channels, taking at least $2B cost out of the business. Ironically, all businesses that used to save the company’s bottom-line under Carly Fiorina have turned into money-loosing problem children under Mark Hurd's leadership….the following appeared on WSJ this morning.

H-P Gets a Boost from Services, Cost Cutting

Hewlett-Packard Co. reported a 14% jump in quarterly profit, an indication that a big bet on technology services and cost-cutting has put the Silicon Valley giant in a strong position as the economy starts to recover.

The fiscal-fourth-quarter results, which H-P had previewed, contrast sharply with a 54% drop in profit announced by rival Dell Inc. last week. Results for H-P's personal-computer business showed the company has increased its market share, in part because H-P is stronger in consumer segments that have accounted for most PC growth recently.

Computer makers have been hurt by falling prices, which have held revenue down though PC demand has been improving. Gartner Inc., a market research firm, on Monday projected that global unit shipments will rise 2.8% this year; in September it had forecast a 2% decline.

H-P, the world's largest tech company by revenue, is considered a bellwether in the sector because its broad business portfolio includes printers, PCs, corporate technology systems, and tech outsourcing services.

Although H-P's revenue fell 8.4% in the quarter, the results were seen as a sign that conditions are improving in the tech sector. "This is further indication that things have stabilized," said Shaw Wu, an analyst with Kaufman Bros.

Cathie Lesjak, H-P's chief financial officer, predicted in an interview that business conditions for the company will be better in 2010 than in 2009.

"We feel as good about our portfolio and our market position as we ever have," added Mark Hurd, H-P's chief executive, during a conference call. "So make no mistake about that. If you talked about our view of our competitive position, it just has never been stronger."

The Palo Alto, Calif., company reported income for the period ended Oct. 31 of $2.41 billion, or 99 cents a share, up from $2.11 billion, or 84 cents a share, in the year-earlier period. Revenue declined to $30.77 billion from $33.6 billion.

H-P's results included a 48% jump in operating profit to $1.4 billion for its services businesses, reflecting cost cutting following its $13 billion purchase of Electronic Data Systems last year.

Revenue from services increased 8%, though the year-ago quarter included only two months of EDS revenue, Mr. Wu noted.

Ms. Lesjak said if last year's period included a full quarter of EDS revenue, H-P's overall services sales would be "down double digits" due to a drop in corporate spending and accounting changes related to the merger.

But she said H-P is about one-third of the way toward finishing a plan to remove $3 billion in annual cost from the EDS business. She also said the EDS unit has started to generate sales of equipment like PCs, though the results of such sales weren't significant last quarter.

In PCs, H-P said it has become No. 1 in sales of computers to large U.S. businesses, Dell's historic stronghold. H-P said its PC division posted an 8% increase in shipments from the year-earlier quarter, though its revenue declined 12%.

Dell, in contrast, reported a PC revenue drop of more than 19%; it didn't quantify unit shipments, but Gartner estimated that Dell's unit sales declined 6.7% in the quarter.

H-P's storage and servers division, which sells server systems, reported a 17% revenue decline. Its printer business, which used to account for most of its profit thanks to high-margin ink sales, continued to wane as people reduce their reliance on printed material. The division reported a revenue drop of 15%; printer shipments decreased 20%.

H-P said it expects revenue of $118 billion to $119 billion for the 2010 fiscal year, up from a prior projection of $117 billion to $118 billion.

Add to Technorati Favorites

1 comment:

Greg Walters said...

Very interesting comment regarding EDS overseeing commercial printing and the associated channel(s).

IPG under EDS?

Or IPG gone?