HP Takes $8 Billion Hit As Consulting Business FadesHeads roll as massive write-off reflects reduced value of HP's Enterprise Services consulting division.
When will the bloodletting stop at HP? The company announced Wednesday that it will take a huge $8 billion charge against earnings in the third quarter to account for the reduced value of its Enterprise Services consulting business.
Enterprise Services is HP's second-largest division, and it has been seen as one of the keys to profitable growth for the company. HP built the division primarily by acquiring Electronic Data Systems for $13.9 billion in 2008. That move followed in the footsteps of IBM, which acquired PricewaterhouseCoopers in 2002 for $3.4 billion.
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In hindsight, HP was late to the game and paid a premium at a peak in the market. The company added nearly $11 billion in goodwill to its balance sheets at the time of the EDS deal, but the write-down will wipe out about 72% of that value, according to CBS MoneyWatch.
With revenue flat and operating profit declining for the division, HP also announced that John Visentin, the head of Enterprise Services, is leaving the company. He will be replaced on interim basis by Mike Nefkens, currently the head of the division's operations in Europe, the Middle East, and Africa.
[ The news isn't all bad at HP. Read Oracle Loses HP Itanium Court Battle. ]
In one silver lining in an otherwise dark cloud, HP reported better-than-expected results for the quarter, projecting earnings of $1 per share, excluding the write-down, up from the expected range of 94 cents to 97 cents. Complete results for the third quarter will be reported August 22.
HP also has updated the charges it will take in the third quarter tied to a massive restructuring program announced in May. That initiative was expected to slash HP's workforce by about 8%, or 27,000 employees, by 2014. HP said its pretax charge will be $1.5 to 1.7 billion, up from the original $1 billion estimate, because more employees than expected were accepting the terms of an HP early retirement program.
Another topic swirling around HP this week has been renewed calls for the company to spin off its PC and printer businesses. Public discussion of such a move by ex-CEO Leo Apotheker led to his ouster last year as the company's stock went into a tailspin. But on Tuesday, UBS equity analyst Steven Milunovich argued in a research note that HP might be "smarter apart."
Taking over after a year of chaotic change under Apotheker, HP CEO Meg Whitman has used the catchphrase "better together" when describing the company's path forward.