HP Plans 'Another Great Run,' Replaces Enterprise Chief

HP CEO Meg Whitman lays out vision for what the company must do to return to its former glory and names Bill Veghte new enterprise group leader.
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HP reported its third-quarter earnings late Wednesday and the numbers weren't pretty. Nonetheless, the company's cash and debt positions improved and results were within (though not at the high end) of company guidance, and that will buy more time.

Be patient, CEO Meg Whitman counseled during a conference call: "We're trying to set up HP for another great run."

The setup, said Whitman, is all about "deciding where you want to play and how you're going to win." Picking the right game is a matter of reducing dependence on commoditized, low-margin business and moving into innovative, higher-margin new-product categories. So HP is trying to steer customers away from industry-standard servers, for example, and toward the innovative, low-power servers being developed as part of Project Moonshot -- pity that the latter are not quite in full production.

[ Want more on breakthrough product categories? Read Intel, AMD Debate Best Chip For Cloud. ]

Instead of selling low-margin traditional storage products, HP would like to sell more of its software-defined storage products, which are said by HP to improve efficiency and flexibility. Products in this line include HP StoreVirtual Virtual Storage Appliance software and HP 3PAR StoreServ Storage.

Other bright spots include security products growing at a double-digit rate and HP Vertica, the high-scale columnar database, growing at a triple-digit rate. The Itanium Unix server business, however, is in decline and was a drag on earnings.

Today, most of those fast-growing new businesses are small and the traditional, commoditized businesses are big, so HP is stuck, for now, in the old games. That led to those ugly numbers. Revenue for the three-month period ended July 31 was down 8% from the same quarter last year to $27.2 billion. Earnings were down 14% to 86 cents per share.

The big ball and chain on results was once again the PC business, with personal systems revenue down 11% year over year and showing a 3.0% operating margin. Consumer revenue declined 22%, with desktops units down 9% and notebooks units down 14%.

The surprise drag on performance was HP's enterprise group, in which revenue declined 9% from the previous year. The unit's networking equipment revenue was flat, industry-standard server revenue was down 11%, storage revenue was down 10% and services revenue was down 7%.

Whitman cited a litany of woes softening enterprise demand -- including economic weakness in Europe and China and government austerity measures in the U.S. and U.K. -- but this is one area where she was counting on a faster transition. Thus, HP also announced Wednesday that it has replaced Enterprise Group executive Dave Donatelli, who will take on another role, with Bill Veghte, HP's chief operating officer (COO). Veghte becomes executive VP and general manager of the HP enterprise group, and he will also oversee development of the company's cloud portfolio.

It's now Veghte's job to see to it that Moonshot, converged storage, cloud and other big enterprise bets pay off. Whitman also has replaced the heads of the PC business, plus marketing, printing, software and services businesses during the last year, cracking the whip in hopes of making the old-to-new transitions happen more quickly. Whitman acknowledged she has mostly promoted from within because HP has "excellent second- and third-level executives that are quite capable of stepping up."

Whitman acknowledged that purely organic efforts to transform HP won't be enough. The good news, she said, is that the company's improving balance sheet will enable it to return to acquisitions in the months ahead. Any such deals will be "measured and disciplined," she added, acknowledging the company's disastrous missteps in the Autonomy acquisition.

HP has new products and plans in place, so Whitman said she's not too worried about what's in the lab that might show up in the market four years from now. Right now it's "much more about prosaic execution." In other words, get out there and make those transitions happen.