HP Revenues Hurt by Slowing PC, Server Demand

CEO Meg Whitman says that despite the difficult quarterly numbers, the multi-year turnaround strategy is making progress.

Hewlett-Packard CEO Meg Whitman says the multi-year turnaround of the tech giant is continuing to move forward, despite setbacks in the company’s latest quarterly financial numbers.

HP saw its fiscal third-quarter revenues hit $27.2 billion, a drop from the $29.7 billion from the same period in 2012 as the contracting global PC market continues to hammer the company, and its Enterprise Group struggled with a competitive market and execution missteps.

Net income hit $1.39 billion, a significant jump from the $9.8 billion loss from a year ago, which was due in large part to a significant write-down HP took for its $13.9 billion acquisition of services company EDS in 2008.

Given the financial numbers, Whitman—who had been hopeful of growth in fiscal year 2014—told analysts and journalists on a conference call Aug. 21 that she no longer expected year-over-year revenue increases for the year.

She noted that some HP businesses—including printers, enterprise services and software—had a strong quarter, though revenues were down in every segment except software. However, much of the focus fell on the PC business and Enterprise Group, which is responsible for the company’s broad server, storage and networking offerings.

The continued decline in the Personal Systems Group’s numbers—revenue fell 11 percent, including a 22 percent drop in consumer PCs—was not surprising, given the quarters-long slowdown in PC sales worldwide as consumers and business users migrate to mobile devices such as smartphones and tablets.

However, Whitman said the performance of the Enterprise Group was “very disappointing,” and said that while there were some external issues, including softness in Europe and China, impacting the financial numbers—particularly in such areas as industry-standard servers and some storage products—much of the problems had to do with execution.

“Overall, the enterprise group's performance was very disappointing,” she said during the conference call. “Mainstream server weakness was driven by execution challenges, competitive pricing and a misaligned go-to-market model. This impacted our revenue and profitability. The net impact of these execution challenges is an expected loss of five points of market share on a revenue basis.”

To help fix those problems, Whitman is bringing in a new executive to oversee the Enterprise Group. Dave Donatelli was reassigned within the company, and COO Bill Veghte will take over. She noted Veghte’s experience in both software and sales as key assets for the business unit.