Hewlett Packard - The Adventure Continues for HP and CEO Meg Whitman

For Hewlett Packard and CEO Meg Whitman, there is never a dull moment.    Board Chairman Ray Lane was essentially given a vote of no confidence by shareholders and has relinquished his chair position.  . John Hammergren, who has been on the board since 2005, and former Wachovia CEO G. Kennedy Thompson, a director since 2006, will resign, as well.  The three could perhaps offer themselves as a package deal for Dancing with the Stars.

All three have   been on the board for much of Hewlett Packard’s precipitous decline in stock price.  There for Autonomy.  There for the  tablet debacle.  You really can’t  really  blame the board for these, in some respects.  External smartest guys in the room and others in the Hewlett Packard organization did make the recommendations. 

After hitting a 52-week low of $11.25, that stock has gone up to $20.66.  This is still substantially below the just under $45 they were trading at a couple of years ago.  On a percentage basis, the Dow has increased about 20% and Dell has decreased about 10% over the same period.

So, what is HP going to do?  Meg Whitman is still saying recovery will be a four-year process.  Hewlett Packard has been investing in security as part of their strategy.  Tablets were revived from coaster status to being part of the strategic mix. Smart phones may be part of the mix in 2014.   Last week, as part of project Moonshot, Hewlett Packard introduced a line-up of super servers.  These are designed to appeal to the biggest social-media, cloud-computing, and e-commerce sites.

Autonomy is going to continue to be part of HP.  Even after the massive writedown.  "We remain committed to Autonomy; we remain committed to the brand, to Cambridge, to the U.K.," she said at a  recent news conference.   "It is an almost magical technology. ... It plays into a big shift in the market, the area of Big Data, which HP should be in."  Bets are being taken as to who will ultimately be thrown under the bus for the analysis of this deal and from which side of the pond.   http://www.denverpost.com/business/ci_22999671/hewlett-packard-ceo-meg-whitman-remains-committed-autonomy

 

The laptop/PC business won’t drive a recovery.  Printer sales and ink revenue won’t increase if laptop/PC sales tank.  According to IDC, laptop/PC sales dropped over 11% in Q1 versus the same period in 2012. For HP, the drop was 24%.  Windows 8 sales have not been astronomical, as well. 

The takeoff in tablets has sucked the growth out of PC and laptop sales.  Tablets will   out-ship desktop PCs this year, according to IDC.  They are also forecasting that by the end of 2013, desktop PC shipments will dip 4.3 percent.  Tablet shipments will rise to 190 million units, an annual growth rate of 48.7 percent, according to the firm.

Whitman was named CEO in September 2011, replacing Leo Apotheker.  “The pressure is on Meg,” stated Toni Sacconaghi, an analyst with Bernstein Research.  A housecleaning of the board “bought her a year.” according to an April article in the New York Times.  More bold moves are needed by Hewlett Packard and Whitman.  Going private (unlike what Dell is trying to do) isn’t an option.

Whitman and Hewlett Packard need to make even more aggressive  moves.   

http://www.datamation.com/mobile-wireless/tablets-to-surpass-desktop-pcs-this-year-idc.html

 

http://www.forbes.com/sites/connieguglielmo/2013/04/04/hewlett-packards-board-continues-to-deliver-drama-as-chairman-lane-steps-down/

“Hewlett Packard and Meg Whitman – The First Year.  Turbulence and Turmoil in the Valley” at

http://kensek.blogspot.com/2012/09/hewlett-packard-and-meg-whitman-first.html

Major Moves by Hewlett Packard and CEO Meg Whitman

The sleeping giant is making some moves.  Last Wednesday,    ewHewlett Packard wrote down its investment in its enterprise services division by $8 billion.  To put this in perspective, Electronic Data Systems(EDS), which is part of this group, was purchased four years ago for $13 billion.  

 
The write-down is one of those accounting “things”.  Its recognition that the investment in EDS  was not as great an investment as HP originally thought it would be.  Some would say, “Oh, a major mistake.”  Others would say “market conditions.”  Regardless, it’s a hit to goodwill and an expense to the income statement.  It's  a non-cash adjustment to the balance sheet.  As a result of the charges, Hewlett-Packard said it would report a loss of $4.31 to $4.49 a share when it announces its third-quarter results on Aug. 22.

This week, an  interesting move by by HP CEO Meg Whitman.   The WebOS group is being spun off  as an independent but wholly owned subsidiary.  Its name, Gram.  The tagline - “Potent.  Light.  Nimble.  At the core of all things big and small.”  Gram will be in stealth mode for the next few months.  An open source version of WebOS will still take place in September.

   

My humble opinion is that the market will like the Gram news on Thursday.  It’s not a light move, name notwithstanding! This gives Gram the opportunity to innovate  more quickly than it would if were still in the HP corporate  framework. Not quite a skunk works.   Going against Gram is the fact they’ve lost brainpower over the last several months. Reactions by tablet makers?  They probably won’t make any grand statements.   

August 15 marked day 328 of Meg Whitman’s tenure as CEO.  The stock has dropped   15% since she took over as CEO, hitting a one-year low of $17.41 in early August.  Both the Dow and NASDAQ are up a little over 20% during that time.  Dell has dropped by about 12% over this period.

Whitman  has stated since the beginning of her tenure as CEO September 22  that the turnaround will take time.  These and the layoffs announced   in May are major moves.  She and HP are  not standing still. 

http://www.crn.com/news/mobility/240005635/hp-spins-off-webos-business-as-gram.htm?cid=nl_alert

 

http://www.nytimes.com/2012/08/09/technology/hp-takes-8-billion-charge-on-eds-acquisition.html

Seminal Moment for Hewlett Packard and Meg Whitman – 27,000 Layoffs Announced

Let the restructuring begin.  ­ For the fiscal second quarter, ending  in April, Hewlett Packard’s profit before some costs fell to 98 cents a share, below  analysts’ 91-cent average estimate.  However, the sales decline of three percent to $30.7 billion topped   the average projection of $29.9 billion.

As part of the earnings announcement on Wednesday, HP stated that it plans a   27,000 workforce reduction (an 8% reduction) between now and October 2014.  This is the largest payroll purge in its 73-year history.  Annual savings from layoffs, retirements, and other measures, will be about $3.5 billion annually.  The job cuts and retirements will pare Hewlett-Packard’s workforce to  349,600.  Among Whitman’s foci for the coming turnaround, delivering the “right products, at the right price, at the right time.”

Many of the cuts will come from the   enterprise services group, which manages data centers and provides technology consulting. This group expanded when Hewlett Packard acquired Electronic Data Systems for $13.2 billion in 2008.  Services demand has slowed, and the division’s profitability has declined amid competition from companies such as International Business Machines Corp.

  "These are never fun but given where H-P is, these are necessarily to get the company back on track," Sterne Agee analyst Shaw Wu said.  During the reign of Bill Hewlett and Dave Packard, during one economic lull,   employees worked a 4-day workweek with a reduction in pay to maintain staff.  In today’s environment, even they may have had to go for layoffs. 

 “This is quite different from the cost-cutting that Mark Hurd undertook,” Whitman said in an interview.  “This is about fundamental business-process re-engineering.”

Meg Whitman   has said the company needs to make its products and services more competitive and spend more on research and product development.  Under some of her predecessors, Hurd, for example, R&D   suffered as cost cutting was the primary focus.  Brian Marshall, an analyst at ISI Group, said in a research note last month the company ought to spend $4 billion to $5 billion on R&D to compete with IBM and Cisco Systems Inc. in developing new products.  Hewlett Packard had been spending about $3.2 billion annually. 

When Whitman was named CEO in September, HP’s stock was at about $22.80.  It closed on Wednesday at $23.03 and had reached a peak of $29.89 on February 16.  During Whitman’s tenure, NASDAQ has gone up by about 15%.  Not a lot can be read into this, however.

A Brief Timeline of Whitman’s Tenure to Date

• Aug. 18: HP announces it will discontinue its tablet computer and smartphone products and may sell or spin off its PC division.
• Sept. 23: HP fires Apotheker after just 11 months and replaces him with Meg Whitman
• Oct. 27: HP says it will keep the PC division after all. 
• Dec. 9: HP says that instead of selling its WebOS mobile system or killing it off, it will make it available as open-source software that anyone can use and modify freely.  HP says it still plans to develop and support WebOS
• Feb. 22, 2012: Whitman urges investors to be patient and talks of a "multiyear journey" for a turnaround. 
• March 21: HP says it will combine its PC and printers businesses.  The move will save an unspecified amount of money.   
• April 11: Estimates from research groups Gartner and IDC suggest that HP has regained much of the PC business it had lost during the period of indecision.  Now about those tablets they sold for $99 when they said that they were thinking of discontinuing that business….

There will be uncertainty over the next few months as Whitman and had team decide in more detail where the cuts will be during this restructuring.  About a third of them will be in the United States.  The analysts will probably in general  be positive with the move.  Layoffs and reinvesting in R&D is nothing new.  These are typical turnaround Bain type activities, where both Whitman (and Romney), spent part of their careers.   

Nothing   has been said how acquisitions may play a role in the turnaround. While R&D will increase, growth via acquisition can make sense for certain deals to get into a business or plug a gap in a product line quickly. Part of Apotheker’s demise was his decision to (way) overpay for the Autonomy acquisition.  Hewlett Packard had been investing more heavily in security and making security acquisitions.  This will continue.

When Whitman accepted the CEO position,   she moved out of the “executive offices” and into a cubicle on the floor with other employees.  This is more in keeping with the culture that Bill Hewlett and Dave Packard had for the company. You didn’t see this during the Carly Fiorina era.

Meg Whitman isn’t getting a huge salary for her efforts.    In a recent filing with the Securities and Exchange Commission HP wrote that  Whitman received a salary of $1, about $16.1 million in stock options, and $372,598 in "other compensation," including use of the company aircraft.

 

http://www.bloomberg.com/news/2012-05-23/hp-third-quarter-forecast-misses-estimate-27-000-jobs-to-be-cut.html

 

http://kensek.blogspot.com/2012/03/meg-whitman-era-at-hewlett-packard-six.html

 

The Meg Whitman Era at Hewlett Packard - Six Months In

March 20 Addendum - Hewlett Packard Meg Whitman plans to combine the computing giant's PC and printing divisions in a major internal overhaul intended to spur combined sales of hardware to customers

The most recent move is intended to reap the synergies of two divisions whose hardware products are often sold side-by-side, said the second source familiar with the plan. (From Reuters)

Sounds like reductions in force ..... No economies of scale in manufacturing. No economies of scale in R&D. Do people need to upgrade their printer when they get the latest and greatest PC or laptop?

Still a B-

Original Post

Meg Whitman has now been CEO of Hewlett-Packard for six months. The scorecard? Probably a B-. It’s virtually impossible to make radical changes in 180 days unless your strategy is slash and burn. And that’s not what HP requires. HP is a $48 billion market cap firm with over 300k employees globally. This will take awhile. Whitman is saying two years.

Threats facing HP Whitman has pointed out include - PC sales are slowing as more people buy smartphones and tablets. The high-profit ink business is slipping as customers store photos on Facebook (or other sites) instead of printing them at home. HP is selling fewer high-end servers after archrival Oracle (ORCL) stopped making software for those systems.

Some immediate decisions needed to be made, quickly, when Whitman accepted the CEO position. She already was on the board. From a perception perspective, Whitman moved top executives out of their offices and into cubicles instead. This rings of the “old HP”, which is a good thing. This wasn’t seen during the Carly Fiorina era!

HP is keeping its $40 billion PC division. However, growth is projected to be in tablets. In this area, Apple has the lead over all other competitors. Tablet sales, driven by sales of Apple’s iPad, grew 274.2% to 63.2 million units last year — most of them iPads, according to tech tracker Canalys. Sales of desktop computers grew 2.3% to 112.4 million units; notebook sales grew 7.5% to 209.6 million units; and netbook sales fell 25.3% to 29.4 million units.

“PCs remain key tools for everything from video editing, music mixing, and spreadsheet crunching to thoughtful missives,” according to James Mouto, general manager for of HP’s personal computer business unit. “And if you’re sending Junior off to college, the first computing product needed for homework is a PC.”

http://www.forbes.com/sites/briancaulfield/2012/03/07/hp-responds-to-apple-your-college-kid-still-needs-a-pc/

WebOS is going open source in September, when Open WebOS 1.0 is scheduled to be released. 500 WebOS employees were let go last September. 275 of the remaining 600 employees were released in late February.

For the stock quants - the stock price is up a little over 7.4% at $24.49 (March 16) since Whitman took the CEO helm. This is far below the 52 week high of $43.28 in March 2011. Competitor Dell is up 24% and the Dow is up 23% over the same period.

HP also has heavily invested in security. This includes acquiring security management company ArcSight for $1.2 billion in 2010. This is also an area Dell has chosen to invest in. Last week they announced that they were purchasing SonicWALL®, Inc. a provider of intelligent network security and data protection solutions. They are acquiring SonicWall from private equity investor firm Thoma Bravo for an estimated price of $1.2 billion.

http://kensek.blogspot.com/2012/03/dell-to-acquire-sonicwall.html

It should be an interesting next 6 months for Whitman as she works with the rest of management to turn HP around. Her salary? $1. Yes, there are incentives and stock options.

http://www.mercurynews.com/business/ci_20201896/whitman-steadies-hp-but-big-challenges-remain