Hewlett-Packard’s slump is deepening as the world’s largest personal computer maker scrambles to meet the growing demand for more versatile and less expensive mobile devices.
The latest evidence of Hewlett-Packard Co.’s continuing downfall came in a quarterly earnings report released Wednesday. The results included the seventh consecutive decline in HP’s quarterly revenue compared with the same period the previous year. HP’s 10 percent decrease in revenue during the three months ending in April was the largest drop so far during the slump.
Most of the erosion has occurred under the leadership of Meg Whitman, a former CEO at eBay Inc. and defeated California gubernatorial candidate, who was hired to run HP in September 2011.
Whitman has repeatedly warned that HP’s revenue might not start growing at an acceptable rate for another year or two as she cuts costs, overhauls the company’s product line and pushes into more profitable niches in business software, data analysis and storage and technology consulting. In a Wednesday statement, she reiterated that the company remains in a “multi-year journey.”
“I am encouraged by our performance in the second quarter, and I feel good about the rest of the year,” Whitman said.
Pressure on Whitman
The PC market malaise steps up pressure on Whitman to boost sales of servers, data storage and networking equipment — including new machines designed to conserve space and energy.
Whitman, the company’s fourth chief executive officer in three years, has been rolling out new products to revive growth after seven quarters of declining sales and profit.
“Meg’s regained some people’s confidence,” Chris Whitmore, an analyst at Deutsche Bank AG in San Francisco who recommends selling the shares, told Bloomberg News. “Six months ago there was no confidence. Now there is some confidence in management delivering what they say.”
Hewlett-Packard is seeking to move past three years of management tumult — including the departure of former CEOs Mark Hurd and Leo Apotheker — and writedowns of acquisitions including Electronic Data Systems Corp., handheld-device maker Palm Inc. and software-developer Autonomy Corp.
Ray Lane resigned as chairman last month after coming under fire from investors, who said management and the board failed to conduct the proper due diligence before buying Autonomy for $10.3 billion in 2011. Hewlett-Packard took a $8.8 billion charge for Autonomy in November.
In a sign of optimism, HP predicted its earnings for the current quarter ending in July will be a slightly better than analysts have been anticipating. Excluding certain items, the Palo Alto, Calif. company forecast earnings ranging from 84 cents to 87 cents per share. Analysts, on average, had projected 83 cents per share, according to FactSet.
Investors seemed to interpret the guidance as a sign that HP’s cost-cutting measures imposed by Whitman are starting to pay off, even as the company’s sales droop.
HP’s stock surged $2.70, or nearly 13 percent, to $23.93 in extended trading, after the release of the results.
HP earned $1.1 billion, or 55 cents per share, during its most recently completed quarter. That was down 32 percent from $1.6 billion, or 80 cents per share, last year.
If not for certain items unrelated to its ongoing business, the Palo Alto, Calif. company said it would have earned 87 cents per share in its fiscal second quarter. That figure topped the average estimate of 81 cents per share among analysts surveyed by FactSet.
HP’s revenue totaled $27.6 billion — about $400 million below analyst projections.
Lack of innovation
The troubles plaguing the company primarily stem from a lack of innovation and misguided acquisitions at a pivotal juncture in technology.
Since the release of Apple Inc.’s iPhone six years ago, consumers and corporate customers have been gravitating toward smartphones and tablet computers equipped with touch-screens and voice recognition technology. As these mobile devices add more features and grow increasingly powerful, their prices are falling, too, making them even more attractive compared with laptop and desktop computers.
Like many other PC makers, HP was slow to respond to the shift and then stumbled trying to catch up with Apple and other manufacturers such as Samsung Electronics that make devices running Google Inc.’s Android operating system.
HP’s first foray into tablet computers and smartphones designed for the Palm operating system flopped two years ago. The company is now selling tablets running on Android and a recently introduced version of Windows, but it hasn’t re-entered the smartphone market yet.
Meanwhile, PCs remain more difficult to sell, as HP discovered in its latest quarter. The company’s revenue in the division that sells PCs fell 20 percent in the latest quarter. Printers are also falling out of vogue as mobile devices make it easier to quickly look up data, and services reduce the need for information on paper. HP fared better in the latest quarter than it has in recent periods as its printer revenue dipped by just 1 percent.
Whitman believes HP can bounce back by inventing new technologies and packing them into appealing products more quickly, recapturing the spirit the company established as a Silicon Valley pioneer nearly three-quarters of a century ago.
The effectiveness of Whitman’s strategy is likely to be tested during the next few months as HP releases another wave of PCs that have touch-screen screens and tablets in different sizes. HP is lowering the prices on its upcoming touch-screen PCs in an effort to lure more consumers.
(The Associated Press and Bloomberg News contributed to this report)