Hewlett- Packard Co. (HP) announced its most recent quarterly financial statements, which included not only disappointing results, but a huge unexpected write-down related to questionable accounting at Autonomy, the software giant HP acquired in October 2011. The total hit to HP’s bottom line will be about $8.8 billion dollars, but the hit they are taking on Wall Street and in Main Street may do as much long-term damage as the short-term financial impact.
HP’s overall revenue dropped 6.5%, with PC unit revenue falling 14%, business sales down 13% and consumer unit revenue off 16% for the quarter, compared to the same quarter last year. While $8.8. billion of the company’s problems stem from accounting irregularities at Autonomy, its core business is in trouble even without these problems.
The soft PC market has been an increasingly bigger problem, as consumer spending is shifting from PCs to tablets and smart phones as these devices do more and more in their convenient small packages. Research firm International Data Corporation (IDC) figures show that PC shipments were off 8.6% in the third quarter, compared to last year, representing the biggest drop in more than ten years. HP has lost a larger percentage of PC sales volume than the overall market, putting them in a vulnerable position.
While much of the focus will be on the $8.8 billion charge related to HPs acquisition of Autonomy, HPs senior management would be well served to focus a team on getting to the bottom of these issues and then redirecting their own attention on the company’s operations. Meg Whitman, HPs CEO, announced HP would “return to greatness” on the strength of their products as she proceeded to try to redirect attention to new hardware the company is rolling out in their business hardware unit. She also tried to guide Wall Street analysts last month, and again today, to update their forecasts to reflect HPs expectations for the coming quarter, but most analyst seem to indicate they don’t trust HPs senior management.
Calling the company’s forecasts, “pretty optimistic,” was probably about as kind a description Rob Cihra of Evercore Partners could muster when talking about HP. Referring to HP’s guidance, Cihra said, “Management’s credibility isn’t that high so when they guide for a recovery in the second half, investors take that with a big bag of salt.” With consumers interest shifting to products HP does not have a traditional foothold in (tablets and smart phones) losing analyst trust is just one more strike against the company.
HP’s CEO, Meg Whitman, needs to get things under control at HP and she needs to do it fast if they are going to make a serious run at “returning to greatness.” Pointing fingers about the $8.8 billion Autonomy issue won’t solve anything and trying to redirect attention can only work short-term. Whitman was quick to say, “The two people who should have been held responsible are gone,” referring to HP’s former CEO Leo Apotheker, and Shane Robinson, the company’s former strategy chief. At the end of the day, Whitman is at the helm now and it’s up to her and HP’s senior management team to get things back on track.
