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Meg: It May Take Years to Turn HP Around

Numbers Aren't Pretty, But No One Expected Them to Be

HP turned in its fiscal Q1 numbers Wednesday and they ain't pretty.

Except for software, something HP ain't exactly famous for, the details are a litany of declining sales.

Revenues from its Personal System Group dropped 15% en toto, its commercial PC sales off 7% and its consumer PC sales off a worse 25%. Desktops were down 19%, notebooks 18%.

Printer revenues, its traditional goldmine, dropped 7% with commercial off 5% and consumer off 15%.

Industry standard server revenues dropped 11%, Business Critical Systems were down 27%, storage was down 6%. Networking revenues were flat.

Software revenues, including what its mammoth Autonomy acquisition contributed, were up 30% because licenses were up 12%, support 22% and services a happy 108%.

With all the down arrows it's hard to understand how HP managed to come pretty close to Wall Street's downwardly adjusted revenue expectations with $30 billion, down 7%, versus the market's consensus for $30.75 billion and to beat earnings expectations with 92 cents, down 32% year-over-year, versus 87 cents and its own guidance of 86 cents at best.

Regional results were all disappointing. Revenues from the Americas were down 9% to $13.2 billion; EMEA down 4% to $11.7 billion and Asia-Pacific was down 10% to $5.2 billion.

Even the BRIC countries were off 13% to $3.1 billion.

Revenue in HP's overall commercial businesses declined 4% year-over-year. Revenue in its consumer businesses within PC and printer operations was collectively down 23% year-over-year.

HP blamed the macroeconomy, the hard drive shortage (responsible for half its revenue decline, it said), Oracle's lack of support for its Itanium servers and lack of investment by you-know-who's prior administration in internal systems and processes. (Before it was R&D.)

About two-thirds of the way through the conference call CEO Meg Whitman decided to share her apprehension that HP's turnaround - something it didn't seem to need 18 months ago - would take at least two years and maybe as many as three-to-five years. "It took a while to get into this," she said.

And it's going to mean fewer SKUs, a change in mix, better execution - apparently HP hasn't been any good at matching the disk drives it could get to machines - and standardized, automated, simplified processes.

The company's cost bases are "unsupportable" but HP can't invest before it saves although it needs to invest in innovation and marketing. It needs to "own" the cloud, security and information management, Whitman said.

The company projected that it could realize 88 cents-91 cents non-GAAP this quarter or 68 cents-71 cents GAAP. It still thinks it can do $3.20 GAAP this year. It expects the second half to be better than the first and the drive crisis to clear up by Q3. Its margin picture, however, will be down for the rest of the year.

Needless to say Meg is confident of a turnaround.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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