HP Shakes Up Execs After Disappointing Results - InformationWeek

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8/12/2004
04:23 PM
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HP Shakes Up Execs After Disappointing Results

Three key executives in the company's top enterprise server and storage unit were replaced after the division posted a $208 million operating loss.

Hewlett-Packard fired three top managers Thursday after reporting that its Enterprise Servers and Storage Group experienced a sales decline in the third quarter.

Following the earnings announcement, chairman and CEO Carly Fiorina said Mike Winkler will replace Peter Blackmore as executive VP of the Customer Solutions Group; Jack Novia will replace Jim Milton as the group's senior VP and managing director for the Americas region; and Bernard Meric will replace Kasper Rorsted as the group's senior VP and managing director of Europe.

Winkler has served as chief marketing officer and will retain that role. Novia was senior VP and general manager of the HP Technology Solutions Group. Meric was senior VP of the Imaging and Printing Group for the Europe, Middle East, and Africa region. An HP spokesman said he wasn't aware of any other planned changes.

"It's pretty clear that heads will roll," says Jonathon Eunice, an analyst with Illuminata. "If you're a customer with certain personal relationships with some of the people inside that organization, you'd better brace for change. Anyone with responsibility within that organization is at risk."

Executives on the hot seat could include Ann Livermore, an executive VP who earlier this year was placed in charge of the Technology Solutions Group, which includes Enterprise Servers and Storage, and Bob Shultz, senior VP and general manager of the Network Storage Solutions business unit, Eunice says.

"Execution issues cost us, and we are therefore making immediate management changes," Fiorina said in the statement.

Solid results by the company overall "were overshadowed" by the Enterprise Servers and Storage Group's performance, where revenue was down 5% year to year and down about 15% compared with the second quarter, she said. The segment suffered an operating loss of $208 million, after revenue declines of 8% year over year in its Business Critical Server business and 15% in its storage business.

Fiorina pointed to three issues that led to problems, resulting in shortfalls in revenue of about $400 million and operating profit of about $270 million. The company "executed poorly" on the migration to a new order-processing and supply-chain system, which led to missing some sales opportunities. The problems also required the company to take special measures to ensure deliveries, including fulfilling some direct orders by its channel partners and expediting orders with air shipment, which led to erosion of gross margins.

Second, there were channel-management issues in Europe, including overly aggressive discounting and a transition to centralized claims process. The channel claims process has been resolved, Fiorina said.

The company also experienced declines in average selling prices in its storage business.

New introductions within HP's storage business in May, as well as those planned for September, are expected to strengthen the company's position in that business, Fiorina said.

Overall, the Enterprise Servers and Storage unit should return to profitability in the fourth quarter, she said.

The company reported earnings of $586 million, or 19 cents per share, on revenue of $18.9 billion in the quarter ended July 31. That compares with earnings of $884 million, or 29 cents per share, on revenue of $20.1 billion in the previous quarter, and earnings of $297 million, or 10 cents per share, on revenue of $17.3 billion in same quarter a year ago.

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