Call it Meg Whitman's first big storm. Third-quarter financial results at Hewlett-Packard were not what the president and CEO was hoping for in an ideal technology world.
HP posted a record loss and declining sales. HP's net revenue for the quarter was $29.7 billion, but that was down 5 percent year over year. In all, HP lost $8.86 billion, which includes a write down on its enterprise services unit and a 10 percent PC revenue decline.
"HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds," Whitman said. "During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do."
Down, Down, Down
The story for HP is down, down and down. Beyond the 10 percent dip in PC sales, Commercial unit revenue decreased 9 percent and Consumer unit revenue declined 12 percent. Imaging and Printing Group revenue declined 3 percent year over year. And consumer hardware revenue was down 13 percent year over year with a 23 percent decline in printer units. Commercial hardware revenue was the exception, with units up 4 percent year over year.
Meanwhile, Services revenue declined 3 percent year over year. Technology Services revenue was down 1 percent, Application and Business Services revenue was flat, and IT Outsourcing revenue declined 6 percent. Enterprise Servers, Storage and Networking revenue also declined 4 percent.
The bright spots for HP were Networking and Software units. Networking revenue was up 6 percent and Software revenue grew 18 percent. But that wasn't enough to offset the losses in most other business units.
Whitman's Bold Move
Charles King, principal analyst at Pund-IT, said turning around a company, especially one the size and complexity of HP, is no easy task. People often liken the effort to turning a battleship, he said, and HP is still a behemoth.
"The decision to take the write down on EDS is an interesting side of this whole deal," King told us. "That, frankly, is not a decision I could have imagined Mark Hurd making. EDS was supposed to be the crown jewel of HP's transition to a services-driven enterprise solutions organization."
As King sees it, the fact that HP had to take an $8 billion write-down on a company it paid some $12 billion for is an indicator of how poorly thought-out the acquisition was. He called it a testimony to the likelihood that HP paid too much for EDS.
"Making those kinds of hard decisions is one of the reasons why they hired Meg Whitman. This is a good example of her willingness to do the hard thing even when it's obviously going to be difficult for the company and shareholders in the short term. It was a bold but necessary move," King said.
"Sometimes you just have to admit that the train wreck has occurred and move on rather than pretending that going off the rails is part of the scenic excursion."