Global CIO: HP CEO Apotheker Is Betting The Farm

1) Tony Sacconaghi of Sanford Bernstein, who always asks some of the most-probing questions on these calls, said the HP presentation "sounded like China was down pretty materially" and "you're the only company that I know of whose Asia growth rate was slower than its overall company growth rate," according to the earnings-call transcript on seekingalpha.com. He than asked about the dynamics behind that, and here's a very representative excerpt from Apotheker's answer: "We are not yet where we want to be, but we are cautiously optimistic about the actions we have been taking in China. It’s a big market. It’s a very important market. And we are very much focused in getting it right."

2) Keith Bachmann of Bank of Montreal noted that HP's quarterly revenue fell $2 billion short of the projection made the company itself made just 70 days earlier. Bachmann noted he was "surprised to hear some of the outlook difference comes from the services side." Apotheker's responded in part: " Let's be very clear about this. What happened in the revenues in Q1 is exactly what we have just described." Apotheker then went on to give details from other areas of HP about which Bachmann had not asked. Apotheker also said, "In Q1, we had a number of significant issues that we had to address. We have addressed them. Our portfolio is much stronger going forward."

That answer clearly satisfied Apotheker, but I'll bet it raised even more questions in the mind of the analyst, just as the non-answer to the previous question about China had done.

3) Maynard Um of UBS then asked about any competitive impact caused by Cisco and Oracle, specifically asking about any variations in pricing or pipelines or related effects. Apotheker pretty much ignored the question and recapped HP's performance in services, servers, storage, and networking.

Lots of CEOs do just what Apotheker and decline to specifically discuss competitors. But it seems Apotheker missed a perfect opportunity to give at least a hint about how HP's robust networking business beat Cisco on some big deals, or how Oracle talks too much, or how HP's Converged Infrastructure strategy will let it continue to beat those rivals.

Instead, he let the uncertainty take root.

Once again, it wasn't so much what he said, but what he didn't say.

And that lack of clarity and specificity was not lost on the analyst community. Jason Maynard of Wells Fargo made this observation in a research note about HP's numbers: "HP results and guidance were disappointing and raise questions about their ability to achieve the full year forecast. If we dissect the Q1 performance and the guidance, HP has cut their Q2 outlook but left intact their 2H revenue and margin assumptions. With the weakness in both PSG and IT services, we think the implied improvement in the back half of the year is aggressive. We are a little surprised that HP didn’t take the opportunity to reset the bar since it will take some time for webOS to offset consumer PC weakness and for services to regain their footing."

Apotheker is apparently banking that such short-term uncertainty will all be converted to long-term confidence as a result of the March 14 pow-wow, which he described thusly: "I’ll go over HP's strategy and how it will continue to evolve. I’ll talk about the opportunities we see in a more seamlessly connected world from the enterprise to the consumer, leveraging our strength in cloud and connectivity, and the portfolio of hardware, services, software, and solutions we need to make that happen."

Hey—the guy's only been in office for a few months. And yes, HP's not a simple story to tell—it is, after all, the largest IT company in the world, with annual revenue of around $130 billion.

But with this week's disappointing financial results and the consequent pounding of the stock price, and with Apotheker's vague responses to detailed inquiries from analysts, HP and its new CEO are now raising many more questions than they're answering.

Not to worry, says Apotheker; all will be made clear on March 14.

In making that play, Apotheker and HP have imbued that event with monumental significance—and expectations. If they nail it, they can generate significant momentum in the market and among investors, and Apotheker will deservedly see his credibility soar.

But if they miss, Apotheker and HP will face withering scrutiny for many months to come. And they'll have no one but themselves to blame.

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