HP Profit Dives as Whitman Positions for a Turnaround

by Sean Kerner

HP has dug itself a big financial hole, but it's one that new CEO Meg Whitman has a plan to dig out from.

HP is starting off its fiscal 2012 year on a down note financially. HP reported first-quarter fiscal 2012 earnings late Wednesday with declining revenues and income.

For the quarter, HP reported net revenues of $30.0 billion, which is a 7 percent year-over-year decline. Net earnings were reported at $1.5 billion, a 44 percent year-over-year decline.

"Frankly, it was a tough quarter, and every business had its challenges," HP CEO Meg Whitman said during the company's earnings call.

Whitman noted that back in November, HP set the outlook for 2012. At that time, it noted there were likely to be a number of challenges, including the hard drive shortage and an uncertain macroeconomic environment.

"The headwinds we discussed did impact performance, contributing to a decline in revenues, operating margins, cash flows and earnings year-over-year," Whitman said.

HP's Business Critical Systems (BCS) division was particularly hard hit with revenue declines of 27 percent year-over-year, even though some server classes actually grew.

"Within BCS, our mission-critical x86 and NonStop products grew double digits, but not by enough to counteract the impact of continuing Itanium challenges," HP CFO, Catherine Lesjak said.

HP is the only vendor that still ships Itanium-powered servers. It's a market that has come under increasing pressure as software vendors, including Oracle, have decided to also abandon the platform. HP, however, isn't going to let Oracle off the hook, without a fight.

"With respect to our Itanium portfolio, we are working diligently to enforce the commitments that Oracle has made to our customers and to HP," Lesjak said. "And our customers are excited about the capabilities of our new Odyssey platform, which allows enterprises to transition workloads off UNIX-based systems to mission-critical, Xeon-based x86 chips."

HP is also optimistic about its upcoming Gen8 server launch, coming up this quarter. HP's Gen8 servers will benefit from an effort called Project Voyager, which delivers new server control and visibility to enterprises and data centers.

"We believe that this is just the type of game-changing innovation that can help us regain our momentum in the category," Whitman said about the Gen8 release.

Whitman stressed that there is now a plan in place to turn HP around. It involves fixing execution as well as ensuring the company has the right systems, processes and people.

"A formula for success here is not having revenue declines of negative 7 percent to 8 percent in constant currency," Whitman said. "So the first step with stabilization is to stop the decline."

Whitman added that the next key step is to start growing revenues again.

"The only way that we know how to do that is you've actually got to gain share in virtually every single market," Whitman said. "I have no doubt that we'll turn HP around."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals. Follow him on Twitter @TechJournalist.

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This article was originally published on Thursday Feb 23rd 2012
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