As Hewlett-Packard Co nears its highly anticipated split, the Palo Alto-based company experienced yet another disappointing quarter, dropping 13 percent year-over-year. It is the 15th revenue decline in the past 16 quarters for the former tech giant.
CNBC’s Jacob Pramuk summed up the quarterly earnings:
Hewlett-Packard posted quarterly earnings that topped analysts’ expectations on Thursday but sluggish sales as its legacy business continued to drag.
The stock was choppy in extended trading after HP posted adjusted earnings of 88 cents per share on $25.3 billion in revenue. Sales fell 8 percent from the year before.
Analysts had expected the company to report earnings of 85 cents a share on $25.44 billion in revenue, according to a consensus estimate from Thomson Reuters.
The report comes ahead of HP’s plans to split itself into two separate companies on Nov. 1. HP Enterprise—its faster growing segment—will focus on large and small businesses, and HP Inc. will house the company’s personal systems and printing business.
Sales for HP’s Enterprise Group rose 2 percent year over year, with a 13 percent operating margin. Enterprise Services revenue declined 11 percent from the year before, with a 6 percent operating margin.
Printing and personal systems revenue continued to sag, dipping to $12.6 billion from $14.24 billion a year ago, or 12 percent lower.
The Wall Street Journal’s Robert McMillan broke down the company’s earnings one step further, particularly in the PC market:
H-P is faring better than some PC rivals, but revenue from its sizable consumer business dropped a sharp 22% during the period ended July 31.
“PCs, and print to some degree, had a tough quarter,” H-P Chief Executive Meg Whitman said in an interview. “We think, by the way, that these market conditions are going to continue for at least several quarters.”
H-P is the world’s number-two PC seller, behind Lenovo Group Ltd. Unit sales of H-P PCs fell nearly 10%, year-over-year, during the calendar second quarter, according to market researcher IDC. The recent introduction of Microsoft Corp.’s Windows 10 operating system failed to spur replacement PC sales. Lenovo last week said it would lay off 5% of its workforce, about 3,200 jobs, in part due to the PC slowdown.
Jay Chou, an IDC computer analyst, said hopes for robust PC sales in emerging markets haven’t panned out. China, Indonesia and Latin America are snubbing PCs for less-costly alternatives, Mr. Chou said.
“We’re seeing [customers in] a lot of these emerging markets, in a lot of cases, skip the PC altogether and use either a smartphone or tablet as their primary way of getting on the Internet,” he said.
Results were brighter at the corporate-focused businesses that will form the core of the new Hewlett-Packard Enterprise. Its revenue rose 2% from the year-earlier period, driven by strong sales of servers and networking equipment.
HPE will primarily sell computers and software that corporations use to run their operations. Still, that business is threatened by big companies renting computing power from Amazon.com Inc., Microsoft and International Business Machines Corp., among others.
Nick Wingfield wrote for The New York Times about CEO Meg Whitman’s plan once the split occurs:
The breakup of the company is being explained by Meg Whitman, HP’s chief executive, as an effort to create more nimble, focused companies that can better navigate forces roiling the tech industry. HP, one of Silicon Valley’s founding corporations, was once the largest PC maker in the world, but the company has struggled to adapt to a technology landscape in which the PC is no longer the dominant device.
During a conference call with analysts, executives discussed the future of the two companies that HP will spawn in markedly different tones. While they sounded bullish about the prospects for Hewlett Packard Enterprise, they used phrases like “very challenging market” and “difficult business environment” when talking about the printing and PC groups that will be part of HP Inc.
Ms. Whitman will be chief executive of Hewlett-Packard Enterprise and nonexecutive chairwoman of HP Inc.
“It was a strikingly different message in terms of optimism for HPI versus HPE,” said Toni Sacconaghi, a research analyst at Sanford C. Bernstein, using the abbreviations for the future PC-printer and enterprise companies.
Julie Bort of Business Insider focused on layoffs that will occur once the company splits:
HP’s CFO Cathie Lesjak says the company will cut up to an additional 5% more people from its workforce than the 55,000 people it had planned to eliminate.
This is a long-running layoff that began in 2012 with an initial target of 25,000 jobs, but grew until the target became 55,000 people.
Now it’s grown again. Lasjak didn’t give a new total number although she said the additional job cuts won’t force HP to spend more on restructuring than it had planned.
This is what Lesjak told Wall Street analysts on the quarterly conference call:
We are nearing the end of our 2012 restructuring program and 3,900 people exited in Q3. By the end of Q4, we expect to exceed our prior estimate of 55,000 people to exit the company by up to 5% but will not exceed the foretasted GAAP-only charges.
This particular layoff will be completed in October and HP expects it to cost $5.5 billion. In June, Lesjak said HP had eliminated a total of 48,000. Doing the math, that means HP has trimmed 51,900 people.
After October, HP will be split into two companies and more layoffs could result from that, too.
Those cuts will be to “offset” the costs associated with the fact that HP will also be hiring.
The two HPs will need two HR departments, two legal departments, two IT departments, and so on. CEO Meg Whitman calls these “dis-synergies” and Whitman and Lesjak have been hinting and warning about layoffs associated with that since last quarter. So far they haven’t attached any specific numbers to their plans.
Both execs promised to reveal more details about restructuring at the Wall Street analysts meeting on September 15.
For now, what Whitman promised was that this giant layoff would be “the last restructuring for Enterprise Services.”
