Interim CEO Lesjak scored some big points in last week's earnings call but also revealed equally big challenges at the world's biggest IT company.
Hewlett-Packard CFO Cathie Lesjak had less than two weeks in her new stint as interim CEO to prepare for the company's eagerly anticipated earnings call last week. As the world's largest IT company, HP always draws a great deal of attention to its earnings announcements but the attention level was cranked up even higher due to the recent departure of the formerly permanent CEO.
Lesjak scored some big points in key areas during her first earnings call as interim CEO, and with the HP board feeling a bit stung after its last two CEOs—both outsiders—left the company under clouds of bad publicity for HP, some folks believe the board is leaning toward hiring an insider this time around.
At the same time, her prepared remarks as well as her responses during Q&A with financial analysts also revealed some massive challenges confronting HP, particularly its striking lack of sufficient progress in integrating EDS two years after the acquisition—and HP's board will need to think long and hard about the ability of its new permanent CEO--whether Lesjak or someone else—to drive that integration to a rapid and profitable completion.
I think Lesjak hit a home run less than 30 seconds into her prepared remarks. With HP's stock having been hammered since Mark Hurd's departure, Lesjak stepped forward and calmly and confidently and defined in broad strokes where HP is strong and how it intends to exploit those strengths aggressively and relentlessly.
Here's the comment from the very opening of her remarks that I thought was terrific: "But more importantly, our customers recognize HP's position for the future in the data center and converged infrastructure, in connected and mobile devices, in our imaging portfolio and in the breadth of our services offerings."
Note what Lesjak did not include in that set of priorities: PCs. Yeah, sure, you can argue that PCs are "connected and mobile devices" but consider that for some time now HP has been pigeon-holed in the media as "the world's largest PC company," yet their newly named interim CEO doesn't even include that product category in her first broad public remarks about the company's prospects and performance.
So, based on what she did say, HP's in the data-center business and offers converged infrastructure with lots of mobility capabilities and services, along with its vaunted strengths in printing.
I don't know about you, but most CIOs I talk to will like that a while lot better than "the infrastructure company," which is the wrapper Hurd placed on HP just 10 months ago.
But let's get back to the current (though interim) CEO. Challenged by an analyst during Q&A about the widespread reports that HP's recovery in recent years has come at the cost of stripping out huge chunks of funding from R&D, Lesjak offered this rebuttal:
"Brian, we have not under-invested in R&D," Lesjak said according to the earnings-call transcript on seekingalpha.com. . . . "But I think what is important is to think about the fact that we've got three-year plans out there. Three-year plans that are supported by the board that include acceleration in both R&D and sales to drive growth, and those investments are funded through the vast number of productivity initiatives that we've got kind of in flight already. Plus those that are still to come, that give us a real opportunity to not only have healthy growth, but also grow EPS even faster than revenue growth. So I don't think that there is an issue there at all."
Again, well said—not defensive, and no sign of a retreat into CFO-type arcana to try to cloud the issue.
When another analyst asked about an increase in inventory levels, Lesjak once again came across with an answer that not only defused a potentially incendiary topic but also reflected once again upon the company's core interests and markets:
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