HP's 11 Percent Drop in Services Revenue Worries Investors

CEO and Chairman Meg Whitman said that HP is going to redouble its efforts to turn around its enterprise services business.

Hewlett-Packard had a sweet-and-sour financial day Feb. 24, when the company reported a profitable quarter but also an 11 percent drop in enterprise services income -- the company's No. 1 business heading into the future.

HP also said it will continue laying off employees beyond the originally announced 55,000 workers, due to its plans to separate into two companies, CFO Cathie Lesjak noted on the earnings report conference call.

On the sweet side, HP's sales of notebook PCs and servers were the two brightest spots in the portfolio. The company's consumer laptop division saw revenues grow by 9 percent over 2014, and data center server business was up 7 per cent. Storage revenues were flat, but revenue for all other divisions was down.

Overall, HP, which desperately needs to improve its services business against competitors such as IBM, Dell and a number of smaller, niched companies, reported revenue and earnings both down for the three months ending on Jan. 31, as compared to the year-ago period.

Total revenue for the quarter were $26.8 billion, a 4.7 percent year-on-year dip that didn't live up to Wall Street analysts' projections.

HP's profit of 92 cents per share beat Wall Street's estimates by a cent, but its total earnings of $1.37 billion were down 4.1 percent from the same quarter in 2014.

The stock price was down 7 percent in after-hours trading at $35.79.

CEO and Chairman Meg Whitman said on the conference call that HP is going to redouble its efforts to turn around the enterprise services business. Whitman, who became CEO in September 2011 after the firing of Leo Apotheker, said at the time that she expected it would take five years to turn the company around after a faltering first decade of the new century.

Whitman is now finishing her fourth year at the helm, and with slipping revenue and numerous layoffs framing the current HP situation, a strong turnaround is nowhere in sight.

"ES, this will be the key (to the turnaround)," Whitman said on the conference call. "We expect better revenue performance from ES in the second half.

"Think of it like the bathtub and the water is going to stop draining out of the bathtub as fast as it has, so the water we pour in ought to lead to a rising level in the tub," Whitman said.

Personal Systems division revenue overall was flat at $8.5 billion, but it was only the growth in laptops that kept it at that level. Sales of desktop PCs were down 10 percent from a year ago, and workstation sales were down 1.3 percent from 2014.

HP, which is breaking into two separate enterprises later this year, previously had not projected the total cost of its separation plan, but said Feb. 24 it will amount to about $2.7 billion overall.

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...