HP Q3 2013 Earnings: Executive Changes, Mixed Results

Hewlett-Packard's (HPQ) Q3 2013 earnings and Q4 outlook were a bit soft, and CEO Meg Whitman is making executive changes. The big question: Where is HP's true growth opportunity?

The VAR Guy

August 21, 2013

3 Min Read
HP CEO Meg Whitman
HP CEO Meg Whitman

Hewlett-Packard (HPQ) CEO Meg Whitman is making executive changes today after HP announced Q3 2013 earnings results that were slightly short of Wall Street expectations. HP shares fell about 3 percent in after-hours trading amid a CNBC report that Enterprise Group chief Dave Donatelli and marketing chief Marty Homlish have been shifted out of their positions. The bigger question: As the IT industry shifts to cloud and mobile computing where exactly is HP’s unique value add?

HP’s earnings press release didn’t mention mobile or cloud once. Instead, CEO Whitman offered a generic update in the overall state of HP’s business, stating:

“We once again achieved the financial performance we said we would, delivering $0.86 in non-GAAP diluted earnings per share, within our previously provided outlook of $0.84 to $0.87. I remain confident that we are making progress in our turnaround. We are already seeing significant improvement in our operations, we are successfully rebuilding our balance sheet, our cost structure is more closely aligned with our revenue and we have reignited innovation at HP, with a focus on the customer.”

Still, Wall Street wanted slightly better earnings and investors were also concerned that HP tightened its revenue outlook for the rest of the year. Shares fell 3 percent in after-hours trading on Aug. 21.

Bottom line: None of HP’s business groups are growing. According to HP’s earnings statement:

  • Personal Systems revenue fell 11% year over year with a 3.0% operating margin. Commercial revenue decreased 3% and Consumer revenue declined 22%. Total units were down 8% with Desktops units down 9% and Notebooks units down 14%. Printing revenue declined 4% year over year with a 15.6% operating margin. Total hardware units were up 5% with Commercial hardware units up 12% and Consumer hardware units up 2%. Supplies revenue was down 4%. The VAR Guy’s spin: PCs are not a growth opportunity. Period.

  • Enterprise Group revenue declined 9% year over year with a 15.2% operating margin. Networking revenue was flat, Industry Standard Servers revenue was down 11%, Business Critical Systems revenue was down 26%, Storage revenue was down 10% and Technology Services revenue was down 7%. The VAR Guy’s spin: Much like IBM, HP’s server business and data center efforts are under pressure from the cloud.

  • Enterprise Services revenue declined 9% year over year with a 3.3% operating margin. Application and Business Services revenue was down 11% and Infrastructure Technology Outsourcing revenue declined 7%. The VAR Guy’s spin: Big enterprise outsourcing projects have slowed down now that cloud applications are taking off. 

  • Software revenue was up 1% year over year with a 20.5% operating margin. Support revenue was up 4%, license revenue was flat, professional services revenue was down 11% and SaaS revenue was up 4%. The VAR Guy’s spin: Good to hear about some progress. But let’s wait until Whitman shares some specific cloud and Autonomy updates — perhaps that info will surface during the earnings call today.

  • HP Financial Services revenue was down 6% year over year with a 4% decrease in net portfolio assets and a 9% decrease in financing volume. The business delivered an operating margin of 11.3%. The VAR Guy’s spin: Our resident blogger doesn’t track this group very closely so he’ll punt on a comment here.

Bottom line: Whitman has stabilized HP. But the quest for growth seems elusive — especially as the shift to cloud accelerates. Update, 9:08 p.m. ET, Aug. 21: Here’s  recap of HP’s earnings call — including a warning about 2014 revenues.

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