Good news from HP: It could be worse

Hewlett-Packard CEO Meg Whitman doesn’t look anything like Santa Claus, but she’s carrying a huge sack on her back — and it’s not full of toys. It’s filled with the detritus of more than a decade of predecessors’ terrible management decisions that have cost the jobs of tens of thousands of HP employees, billions of dollars in shareholder value, and the reputation of an iconic Silicon Valley company.

She’s also lugging around the legacy PC business, which has improved only recently because enterprises have finally begun to abandon the now-orphaned Windows XP and buy new PCs for the first time in years. Indeed, strong sales of corporate PCs saved the company from delivering a losing quarter and instead do better than Wall Street expected.

[ Also on InfoWorld: Gartner, IDC, PC sales projections, and other fantasies. ]

Despite Whitman’s optimistic promises of an end to the misery by 2016, even a mediocre quarter like the one HP reported yesterday looks good only because it didn’t contain any really bad financial news or word that her target of as many as 16,000 additional layoffs has been increased. (If that many people are fired, it would bring the total of job cuts since Whitman got the corner office in 2011 to a jaw-dropping 50,000.)

HP is happy that its revenues stopped shrinking

I was hoping (but not expecting) that HP would fool Wall Street and return a big upside surprise. It didn’t. Its results and the outlook for the next quarter were pretty much in line with what Wall Street expected. HP recorded sales of $27.6 billion in its quarter ended June 30, up 1 percent from $27.2 billion a year earlier — a bit better than forecast. Earnings per share were 89 cents, compared to 86 cents a share in the year-earlier period.

It’s worth noting that the slight increase in revenue was the first time in three years the company has recorded year-over-year sales growth. “Turnarounds are not linear,” Whitman said on an earnings call with analysts and reporters. “Overall I’m very pleased with the progress we’ve made.”

Very pleased? Oh well. It certainly could have been worse.

PCs, of all things, carry the day

It’s ironic that the best-performing business segment was personal systems, which is to say PCs. Revenue was up 12 percent year over year with OK operating margins of 4 percent. Revenue from the sales of PCs to businesses was up 14 percent, while sales to individuals were up 8 percent. Notebook sales did the best, with an increase in unit sales of 18 percent.

Whitman said PC sales have been boosted by the refresh cycle following the end of support for Windows XP. That refresh cycle is a positive trend for PC makers, but one nearing its end, she acknowledged.

It’s certainly possible that the slump in the PC business has bottomed out, and it’s certainly true — as HP CFO Cathie Lesjak noted in the company’s earnings call — that some tasks are best handled by a PC. But it’s hardly an area of strong growth for the future. Given that reality, other segments of the company will have to pick up the slack fairly soon.

But with one exception, every other business unit posted shrinking revenue. Even printers, a usually reliable cash cow, was down 4 percent. What will pick up the slack for HP when the XP-replacement cycle is over?

Not the enterprise market HP has been targeting. Yes, revenue in the enterprise group was up 2 percent, led by growth of 9 percent in industry standard servers — helped, no doubt, by IBM’s exit from the x86 server business, a move that probably created concern in the customer base. But software licensing revenue, a key indicator, was off 16 percent, while software as a whole was down 5 percent.

Wall Street was less than thrilled with the performance, and HP’s stock lost ground after the earnings announcment.

Parade of bozos

I really feel for Whitman, who follows a parade of bozos whose damage to HP is astounding. A quick reminder of how things got so bad at HP:

• As the dot-com bubble burst and HP slipped, Carly Fiorina (who became CEO in 1999) threw a Hail Mary pass and, after browbeating the board of directors into submission, purchased Compaq Computer for what was then a staggering price of $25 billion. We know how well that worked out.
• Mark Hurd followed Fiorina in 2005. His big accomplishments: firing lots of people to cut costs, and spending lots of money to buy Palm and EDS. To be fair, he made some temporary progress, but to this day, HP still doesn’t have a smart mobile strategy. While he was slashing jobs and making questionable acquisitions, Hurd was also canoodling with the wrong person — a contractor — and got fired for lying about it on his expense report.
• Next up: Léo Apotheker, the failed and fired SAP CEO who also failed at and was quickly fired by HP. I took a lot of heat from HP when I called him a bozo back in 2011, but the company actually agreed with me, and he was canned after only 11 months on the job. He did so much wrong, it’s hard to sum it up, but I’ve put together a sampler of his mistakes. Arguably the worst was his $10 billion purchase of Autonomy in 2011, which turned out to be such a crummy deal HP is still suing former Autonomy execs for fraud. (Many juicy new details on the suit are in a column by Thomas Lee in the San Francisco Chronicle this week.)

Whitman is not a bozo, but she’s not Steve Jobs, either. Getting the huge sack off her back is a hell of a tough job that may take more vision than she’s exhibited so far. Still, I’m rooting for her because the jobs of tens of thousands of HP employees and people who work in its ecosystem are depending on her next moves.

This article, “Good news from HP: It could be worse,” was originally published by InfoWorld.com.