Halfway through Meg Whitman's HP turnaround time: Is it working?
Certainly not in the bag yet, that's for sure
Analysis Two years in, is Hewlett-Packard CEO Meg Whitman’s recovery plan bearing green shoots?
The company beat gloomy Wall Street projections for the fiscal fourth quarter and 2013 year.
HP’s top line still took a battering but PC sales were not as bad as expected – and better than IDC’s estimated decline for the market. Whitman told analysts on Tuesday she'd seen “pockets of growth in key areas in Q4."
Sounds as though if HP hasn’t exactly turned a corner, it can see the corner approaching. Or can it?
Whitman, a former eBay chief and one-time candidate for California governor, was named CEO in 2011 and pledged to turn HP around by 2016.
She came in as HP was losing billions.
Since then, Whitman has restructured – cutting 26,000 staff to balance the books – and stirred up management with her own appointments.
The company whose slogan used to be “invent” is doing less R&D and spending more on selling and marketing what it has already built. R&D spend fell 20 per cent to $729m during the year while sales and marketing increased four per cent to $3.35bn.
When it came to business, while PCs fared better than expected, it was business PCs that outsold consumer machines, presumably as customers replace legacy Windows XP machines with new ones - probably running Windows 7.
This is important to HP, given that PCs remain its single biggest earner – $32bn for the year ($55.9bn when combined with printing). Enterprise group, comprising servers, storage and networking, is the next biggest on $28bn.
However, HP has stabilised in a segment generally thought to be shrinking in the face of an advancing tablet and smartphone horde. Office desks may still have traditional laptops or desktops (or all-in-ones) on them, but not as many coffee tables and kitchen counters do.
Also, the business boost is likely to be a short-term fillip: companies are moving to Windows 7 driven by the end of support for Windows XP from Microsoft. A good number of firms will miss next year's deadline, but let’s be generous and give laggards until April 2015 to move. The upgrade-from-XP seam will run out pretty soon.
Where does HP go?
On optimistic sign is that the enterprise group - those servers and that networking and storage equipment - grew for the first time in two years during the third quarter. It grew two per cent versus a nine per cent loss in the quarter before. X86 server sales were up 10 per cent.
The reason was the web, what Whitman called “improve execution” in “a strong hyper-scale quarter.”
“Execution” is Valley speak for sales, and that's where that $3.3bn on sales and marketing will have helped, and "hyper-scale" means big web properties.
If this month’s Superpod announcement with Salesforce was anything to go by, HP is now trying to sell servers and equipment into web data centers.
Salesforce was an important win for HP. It gets a toe in the door of a Dell-dominated data center powering a flag-carrying Software-as-a-Service (SaaS) provider - a high-profile account competing against cloud-daddy Amazon.
Expect HP to milk this deal as it tries to push into more web-scale data centers.
It needs to, as it's getting squeezed. The trend among the top-tier web sites - Google, Facebook and Amazon - has become to design their own servers built by Intel, cutting server makers like HP from the equation. These giants want servers that smaller, faster, more powerful and which consume less energy.
Dell cottoned on to this years ago and started selling customized servers to Microsoft and offering reference architectures for everybody else.
Now, HP seems to be trying to catch up.
As such, Whitman now has Microsoft’s former Windows chief Bill Veghte leading this. Veghte had run business strategy and planning, sales and marketing across Windows, Internet Explorer, and OEM sales for Redmond. It’s a top salesman that HP needs to help it "execute."
HP wants to be more like IBM: and the weaklings of the old HP's stable were in the areas where it would like most to be like IBM. We're talking software and online services and also enterprise services.
On software, HP is suffering just like other makers of big, on-premises software whose sales are seeing growth slow down. HP saw software revenue fall nine per cent compared to a year ago, to $3.9bn.
Software did yield growth in cloud, automation and SaaS along with double-digit growth in security after a huge deal with General Motors in 2012 was removed from the year-on-year comparable.
But software is dwarfed by almost everything else the company does. The reality of this fact is emphasised, not diminished, by the effect that removal of the GM deal has on the figures. Also, it's clear that HP is still struggling to get results from Autonomy, the software house it bought for $11bn and then largely wrote off.
HP's ambitions as a provider of cloud services, meanwhile, seem to be going nowhere. The HP Public Cloud service opened in September 2011, but two years on HP is not talking business, revenue or customers.
Mid-way through Whitman's self-allotted turnaround timespan there are positive signs. More time will tell whether what we are seeing has solid foundations - and whether the areas where HP needs to genuinely succeed are really within its grasp.
It'll be a long path to 2016. ®
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