Operation Transformation: HP Take Bold Steps As Revenue Stalls

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Following the shock announcements yesterday, Palo Alto were forced to release Q3 financials to quell shareholders concerns over its move to pull out of the PC business. The PC maker’s Q3 financial results to the end July 31, showed its PC business down 3% overall. Revenue for the personal system group (PSG) fell to $9.5bn from $9.9bn the previous year. Its income from tech services was almost the same at $9.1bn for the quarter. 

HP consumer businesses within personal systems and imaging and printing divisions, were collectively down 15%. 
However, PSG which includes WebOS PCs and the new TouchPad tablet, “remains the PC market leader in terms of units, revenue and profit share,” with 5.9% operating margin, leading many scratching their heads as to why the Palo Alto giant is pulling away from the business. 
 “HP will discontinue operations for webOS devices, specifically the TouchPad and webOS phones.” 
 The tab devices, released earlier this year had “not met internal milestones and financial targets,” it confirmed. It sold one million devices so far  according to reports. “HP will continue to explore options to optimize the value of webOS software going forward.” 
 However, even without its compter unit, Hewlett Packard would still be one of the world’s largest tech companies, according to Wall Street Journal, and one of the largest makers of server, networking and data-storage systems and the single largest printer maker. 
For the quarter, total net revenue of $31.2 billion was up 1% from the prior-year but down 2% when adjusted for currency. 
 However, the company are looking for “higher value, higher margin growth categories” and to “sharpen focus on its strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets,” it said in a statement yesterday. 
 HP’s commercial businesses were “healthy” with 5% revenue growth year over year. 
Third quarter revenue overall growth was flat year over year for most major regions including the Americas ($14.1 billion) as well as in Europe, the Middle East and Africa at $11 billion. However, revenue did climb in in Asia Pacific region, which includes Australia, to $6.1 billion, representing a 9% jump compared to 2010. 
 

Revenue from outside its native US accounted for 65% of total and growing BRIC countries (Brazil, Russia, India and China) generated revenue of $3.7 billion – 12% of the total. GAAP diluted earnings per share (EPS) was $0.93 – up 24% from $0.75 in the prior-year period. 

 Looking at the results, the company’s swift move away from consumer PC’s makes some sense – it recorded growth in services revenue of 4% year over year with far higher operating margins (13.5% compared to 5.9% for PSG) and its Enterprise Servers, Storage and Networking (ESSN) revenue grew 7% annually, on 13% margins. 
Networking, Industry Standard Servers and HP Storage revenue were all up around 10%. HP software revenue – driven by licences- grew 20% year over year. 
The decision to acquire UK software giant Autonomy for around $11.2bn, announced yesterday, has a lot to do with the total move away from hardware, which HP boss, Leo Apotheker, branded a ‘bold’ action.
“HP is taking bold, transformative steps to position the company as a leader in the evolving information economy,” he said.
 So, judging from these fairly robust financials, it appears HP are looking to get out of PC business while it still can, to strengthen growing revenue streams and expand the cloud computing business. 
Not to mention get away from the tablet and smartphone market, which it failed to get a firm foothold of, thanks to dominance of Apple iPad and Android OS phones. 
 “Our outlook reflects the challenges that we face across our businesses,” said Cathie Lesjak, HP executive vice president and chief financial officer. 
 

 “Dealing with these challenges will take time, but HP will navigate through the transformation to become a more focused, streamlined company.”

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