If anyone still needs convincing that Hewlett-Packard’s decision to split into two separate companies is necessary to restore growth, the company’s latest earnings report should be proof enough.
Hewlett-Packard (HPQ) reported $25.3 billion in revenue for the fiscal third quarter, an 8% drop from the $27.6 billion during the same period last year. This makes for the fifteenth time over the last 16 quarters that the company reported lower sales.
Clearly, something needs to change.
Like big enterprise companies including IBM (IBM) and Intel (INTC), the steady decline of the personal computer market has greatly impacted Hewlett-Packard. Sales in HP’s PC business sank 13% year-over-year to $7.5 billion. Its printing business didn’t fare that well either with sales dipping 9% to $5.1 billion.
The company’s biggest highlight, if you can call it one, was the 2% revenue gain from selling data center gear including servers, storage, and networking equipment. If only Hewlett-Packard could somehow remove that pesky PC and printing business so it could concentrate on lifting the minute growth it’s seeing in its enterprise business.
Oh wait, that’s happening.
To refresh, on November 1, Hewlett Packard will split itself into two companies. HP Inc. will take over the the printer and PC business while Hewlett-Packard Enterprise will handle the data center hardware and enterprise services business.
Hewlett-Packard CEO Meg Whitman emphasized on a call with analysts the significance of the company’s planned split, saying HP has been “executing with military precision” an extremely complex job.
Analysts on the call seemed anxious to finally see the restructuring process coming to an end, with one Morgan Stanley analyst asking if HP had any internal discussions about putting an end to the drumbeat of losses it is recording related to the split. In its latest quarter, HP reported separation costs of $401 million, and has previously estimated that, over time, restructuring costs will end up costing at least $2 billion.
“Yes, there is a goal,” said Hewlett-Packard CFO Catherine Lesjak with a hint of humor in her voice. Lesjak was mum on the specifics, but she said the company would provide more details during HP’s meeting with analysts on September 15.
Whitman tried to reassure the analyst that we’ve seen the last of any major overhauls of the company’s business.
“This will be the last restructuring for enterprise services,” Whitman said. As for the PC and printing business, however, it’s likely that there will still need to be some major overhauls going forward as the market for its products continues to deteriorate.
“The next several quarters we think are going to be pretty tough,” Whitman admitted when asked by an analyst about the PC market.
HP’s shares fell 1.41% to $27.35 in after hours trading.
Splitting the company into two pieces should let the future CEO of the HP printer arm, Dion Weisler, buckle down and concentrate on reviving that business while Whitman focuses on the enterprise business, the area that’s at least showing some signs of growth.
At least that’s the plan so far.
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