HP Cites HDD Shortage, Poor Execution for Downer Earnings Report

The IT giant reports on its earnings call that its revenue, profit and profit margins were all down from the previous year and that it will undertake a long-term process of recovery.

Even IT companies need to upgrade their own internal systems every so often, and it looks like Hewlett-Packard€”the world's largest supplier of IT hardware, software and services by sales volume€”may soon become one of its own best customers.

Admitting that it needs to improve its supply chain and general-purpose execution while struggling through a worldwide shortage of hard disk drives, HP reported Feb. 22 on its Q1 2012 earnings call that its revenue, profit and profit margins were all down from the previous year.

For the quarter ended Jan. 31, HP's revenue of $30 billion was down 7 percent from the same period in 2011. Net earnings of $1.6 billion were down 44 percent from $2.5 billion a year ago, and its average sales margin dropped from 12.4 percent to 8.6 percent in a year's time.

/images/stories/meg.whitman07.jpgNot 'Matching Supply With Demand'

"We were not as effective as we needed to be in matching supply with demand," CEO Meg Whitman (pictured) told listeners on the earnings conference call. "When you look at the whole picture, from design to delivery, there are a lot of opportunities for us to improve."

For example, Whitman said, HP "has under-invested in the upgrading of systems for the past few years. For years, we've run our businesses in siloes, which adds complexity and causes things to run slower. We need to streamline our systems with new software and hardware and to standardize, optimize and automate wherever possible."

This is precisely what HP's sales force has been telling its customers and potential customers for years. Now, the front office is looking in the mirror and realizing it needs to undertake its own overhaul.

Whitman also said HP is carrying "far too many SKUs [stock-keeping units]; we need to pare this down and simplify what we're doing. We need to get back to basics as we continue building HP to last."

Referenced several times on the call by Whitman and Chief Financial Officer Cathy Lesjack were the unusually heavy monsoons that flooded Thailand last fall. About 70 percent of the world's hard-disk drives (HDDs)€”many that go into just about all of HP's consumer and enterprise IT devices€”are assembled in Thailand.

Lesjack surmised that about half of HP's 7 percent drop in revenue could be directly attributed to the HDD shortage.

Without hard disk drives, all of HP's hardware businesses literally spin to a complete halt. The company had stockpiled a fair number of HDDs for its servers, storage arrays, switches and consumer PCs, but there weren't quite enough to handle demand, Whitman said.

"We had a few 'ah-hahs' happen to us in the worldwide supply chain, but we learned a lot from the situation about what not to do next time," Whitman said. "We expect the shortage of HDDs to continue into Q2, but we also believe that this situation will work itself back to normal later in the year."

HP's stock was down 41 cents (1.4 percent) at $28.94 at the close of market Feb. 22. It dipped a bit more (35 cents, 1.2 percent) in after-hours trading to $28.59.

Chris Preimesberger is eWEEK's Editor for Features and Analysis. Twitter: editingwhiz

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...