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5/23/2012
06:29 PM
Art Wittmann
Art Wittmann
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HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem

A little more guidance on HP's long-term vision would go a long way right now, with customers and investors.

Hewlett-Packard's second-quarter earnings call on Wednesday was a somber affair, as the company revealed that it will be cutting 27,000 jobs--8% of its workforce--during the next couple of years, amid slumping profits. There were some bright spots. Earnings per share of $0.98 came in above HP's earlier guidance of $0.91. But there's no ignoring the fact that HP's stock price hovers around its book value, meaning any significant further slide would imply that shareholders would benefit if the company were sold for its parts.

During the earnings call there were items to like and others that will make shareholders shudder. On the down side, revenue in HP's printing and imaging group fell 10% from the year-earlier quarter, while PC unit revenue rose a paltry 0.4%. There's not a lot HP can do about that softness. Other imaging companies are getting hit as well, and HP's Personal Systems Group simply can't make highly differentiated products. HP does have a strong relationship with Microsoft, so there may be some hope there. But the company won't make tablets or phones running Windows 8, so the story for PSG is pretty bleak.

CEO Meg Whitman repeated a few times that HP's strategic pillars are cloud, security, and information management. With the continuing interest in big data and analytics, and the perpetual interest in cloud and security, these seem like good bets, but they got only light treatment during the earnings call. Autonomy, a major piece of HP's information management pillar, acquired last year for $11.7 billion, is struggling--so much so that HP is replacing the founding management with HP insiders. HP's latest foray into the cloud is just coming out of beta, so there are no financials on its performance. Whitman made no mention of specific products within HP's security portfolio.

Revenues for other groups were down year over year but mostly up from last quarter. HP is reworking its services group, whose revenue was down 1% from the year-earlier quarter, so that it can better leverage its software assets. Revenue from enterprise servers, storage, and networking fell 5.5% from a year earlier.

HP said its restructuring plans should generate annualized cost savings of between $3 billion and $3.5 billion by 2014, money that will be plowed back mainly into its cloud, information management, and security businesses and to restructure its services businesses around those areas.

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The biggest competitor for that savings, however, will be the need to boost the company's earnings per share. HP has promised shareholders north of $4.00 for the full fiscal year, and it will need a strong second half to hit that mark.

HP continues to have an identity problem. Sure, it wants to be the slick purveyor of everything related to cloud, big data, and security, but it's stuck being the pimply faced kid with braces.

Whitman's message was steady as she goes. The problem is that steady as she goes is boring the life out of investors. A little more guidance on the company's long-term vision, as it reports progress on the moves it has made toward fulfilling that vision, would go a long way toward reassuring customers and investors alike.

The pay-as-you go nature of the cloud makes ROI calculation seem easy. It’s not. Also in the new, all-digital Cloud Calculations InformationWeek supplement: Why infrastructure-as-a-service is a bad deal. (Free registration required.)

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Sam Iam
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Sam Iam,
User Rank: Apprentice
5/26/2012 | 7:34:22 PM
re: HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem
"cloud, security, and information management"

- Cloud sounds good in press releases and gives them some cred as being "forward looking", but there isn't much of a business for anyone around public cloud of the sort Amazon and now HP are pitching. Even Amazon WS, which is suppose to be the poster child of public cloud, only makes a negligible couple of hundred million on AWS with very narrow margins. It is a round error for Amazon. The people who are really doing well in "cloud" are the SaaS providers, like Salesforce.com and to a lesser extent Oracle and IBM. At this point, there isn't a huge amount of revenue or profit in "cloud" through the OS level, which is what HP proposes to sell after their "cloud" gets out of beta. The "cloud" that is doing well is a complete outsourcing through the application level. HP doesn't have any applications to speak of.

- Security has been a hot button for many years. HP's problem in this space is that they are out gunned by IBM, EMC RSA, CA, Accenture on services, and many other providers. It is very competitive and clearly out of their core competency. Basically something smashed together from the acquisitions of Fortify and EDS. They actually have a product called "Secure Boardroom"... hopefully people are not aware of the leaks coming out of their boardroom.

- Information Management is an area where HP is really dreaming. IBM and Oracle are clearly the elephants in the room with complete IM portfolios. EMC and SAP are also trying to get into the game, EMC coming from an infrastructure up strategy and SAP coming from an application down strategy. HP doesn't even have a database or content management system. They basically have Autonomy and Vertica, which were recently acquired, not very successfully, to get into a game that is over their heads.

HP is trying to break into new areas, but the problem is that they are trying to break into areas which other companies, IBM and Oracle most notably, have been in for many years. It is a "me too" strategy instead of finding an innovative new area which is not already solidified with formidable competitors well embedded. They also have to fight with their customers impression of HP as a hardware company. HP is known as a PC, printer and server company.
Sam Iam
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Sam Iam,
User Rank: Apprentice
5/26/2012 | 9:47:23 AM
re: HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem
HP's balance sheet needs to be reviewed by a serious auditor. Their book value is 1.076, which makes no sense. Basically what that means is that if HP was shut down right now their tangible assets (inventory, property, equipment, accounts receivable, cash on hand, etc) minus liabilities would be worth almost as much as the company. In other words, keeping HP open or shutting it down is about financially equivalent for investors. The only reason a bunch of private equity/activist investors are not all over this company is that no one trusts HP's accounting. If it would be about a financial wash to shut it down, it should be hugely profitable to spin-off or sell off the divisions as they still are profitable. The asset values look strange though. For instance, they have inventory which is valued at several times their peers' inventories (3x IBM and 7x Apple). They have "other" assets which cannot be categorized that are huge (14x IBM, 2x Apple). These are likely going to be written down.

Even though it isn't part of the book value, where it really gets wild is in their intangible asset categories. Their "goodwill" (basically means brand equity, premiums over book paid for acquisitions and intellectual property) is an absurd $55 billion as of the latest quarter. Their goodwill is over twice the goodwill of IBM and Oracle. Apple has about $1 billion in goodwill! It will need to take a serious haircut. I cannot believe people are not losing their minds over HP's goodwill value.
AustinIT
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AustinIT,
User Rank: Apprentice
5/25/2012 | 3:21:03 PM
re: HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem
Unfortunately for HP, I quit buying and recommending HP equipment a long time ago... when it became apparent that they had lost site of who they were as a company, who could lead it properly, products that were not aligned with customers needs, and software that was just plain cludgy and buggy. In short, they quit caring about the everyday customers, their products have more issues than most, and there is a lack of focus on the middle market.

I knew long before they "publicly disclosed" to the world that they were no longer interested in the PC and printer markets. It was just plain obvious.
brian9p
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brian9p,
User Rank: Apprentice
5/25/2012 | 8:47:19 AM
re: HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem
It's not too late for HP to pursue today's hottest technologies in the business world: cloud services, big data, BI/analytics. http://informationweek.in/blog...
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