HP sees another tough year ahead in fiscal 2013, with declining profit and industry headwinds continuing to hamper the company's recovery, CEO Meg Whitman said today at HP's annual securities analyst meeting.
HP's guidance for fiscal 2013 came in well short of Wall Street's expectations. HP expects non-GAAP profit of $US3.40 to $US3.60 per share for fiscal 2013, compared to the consensus analyst estimate of $US4.05. In GAAP terms, HP is expecting $US2.10 to $US2.30 a share after charges of $US1.30 per share.
HP shares dropped $US2.20, or more than 12 percent to $US14.93, their lowest levels since 2003.
HP is expecting year-over-year declines in every business unit except software, and the problems are especially acute in enterprise services, home to the EDS business.
HP expects enterprise services revenue to decline 11 to 13 percent in fiscal 2013 with operating margin of 0 to 3 percent. HP attributed nearly half of the decline to four major clients re-negotiating contracts and taking business in-house.
EDS, which HP acquired for $US13.9 billion in 2008, has had four different leaders in as many years, Whitman said at the event. HP's own CEO changes have resulted in "questionable strategic choices" and "short-term unsustainable fixes" that have contributed to EDS' current problems, Whitman said.
Mike Nefkens, acting head of HP enterprise services, told analysts the unit's troubles stem from execution issues, such as insufficient tools and processes, declining productivity and underperforming contracts. This has caused enterprise services' operating margin to shrink from 10 percent in 2010 to HP's current fiscal 2013 guidance of 0 to 3 percent, Nefkens noted.
Nefkens said long term, HP believes it can get enterprise services operating margin back into the 7 to 9 percent range. However, fiscal 2013 will be a "fix-and-build year" for enterprise services, he told analysts.
"We believe, and are confident, that we will get this business back to moderate growth with real margin improvement over time," Nefkens said at the event.
HP last month denied that it is looking to sell EDS and has been shopping the business to private equity firms.
HP is improving the efficiency of its internal operations by using Salesforce CRM, Compass and Workday human resources management software, Whitman said. "We are not as competitive as we need to be in go-to-market because of our IT systems," she told analysts.
HP also needs to retrain its direct sales force with a focus on selling solutions as opposed to products, particularly in emerging growth areas like cloud computing, security and information optimisation, HP's Whitman said.
HP will continue rebuilding trust with channel partners that have been buffeted by questionable strategic decisions, such as ex-CEO Leo Apotheker's idea to sell off the PC business. Last week in a meeting with partners, Whitman said HP is not planning additional changes to its channel leadership team.
"We need to reconnect with the channel. I believe the channel needs simple consistent programs they can count on every day," Whitman told analysts at the event.
Despite the gloomy picture for fiscal 2013, HP expects growth in new products and services to rekindle in 2014. By 2016, Whitman expects HP revenues to be growing in line with gross domestic product, with HP having carved out leadership positions in cloud, security and information management.
"I believe all of these problems are fixable, but it is going to take some time," Whitman told analysts.