Undercurrents: HP struggles to maintain confidence

You may recall that back in August last year the board of Hewlett-Packard announced it was looking at the future of the vendor’s entire PC business with the potential for a spin-off, a sale or keeping it in house. Not long afterwards it sacked CEO Leo Apothekar, widely perceived as the architect of the plan, and appointed former eBayer Meg Whitman in his place.

In October, HP stated its intention to keep the PSG business after all. In the December issue of Irish Computer we interviewed HP PSG Ireland country manager Marcus McKenna, who was able to put a positive gloss on the whole sorry saga. "Had the board not announced it was considering alternatives [for PSG], there would have been a lot of speculation going forward," he said. "It is the lowest contributor in terms of net margin and the smallest net profit contributor in the HP portfolio."

He argued it was "great news" that the board had made the right decision. "There was a lot of guidance taken over the decision and a lot of feedback from customers that HP’s breadth of products and services was strategic," he added. McKenna admitted the confusion over the future of the vendor’s PSG unit may have contributed to delayed decisions in September but it was hard to say what proportion might have been down to general austerity.

Last month, HP reported results for its first fiscal quarter ending 31 January 2012, which took in the first three months following Whitman’s announcement that the PSG unit was being retained. They didn’t make for great reading. Profits were down 44% and sales fell 7%.

Imaging and printing revenues were down 7% year-on-year and enterprise servers, storage and networking revenues declined by 10%. The bright spot was software revenue – Apothekar’s hobbyhorse – which increased by 30% while services grew marginally by 1%.

Underperforming

Sadly,PSG was the worst performing unit. Notebooks were down 15% year-on-year, desktops by 18%, and workstations were flat. Total sales declined by 15% to nearly $8.9 billion. As a result of the fall in PSG revenues, it is now very close to being overtaken by services as HP’s biggest unit by sales. This is not down to any stellar performance by the services business because it has grown only 1% from just over $8.5 billion to more than $8.6 billion.

In a statement accompanying the results, Whitman said HP had delivered on its Q1 outlook and "remained focused on the fundamentals to drive long-term sustainable returns. We are taking the necessary steps to improve execution, increase effectiveness and capitalise on emerging opportunities to reassert HP’s technology leadership".

Apart from tablets, it’s hard to see where growth is going to come from in the PC market for the coming quarters. Migration to Windows 7 could help to fuel business PC sales but they have been fairly muted because of the economic situation. Windows 8 might well give a spurt to consumer PC sales, but still hard to escape the feeling that the PC business is a declining market. HP’s role, even as the largest supplier of PCs in the world (excluding tablets), looks set to be one of managing that decline over a period of time.

What does it do in the meantime? Judging by her comments at HP’s global partner conference in Las Vegas last month (as reported in IT Pro), Whitman seems to be engaged in a process of calming everyone down and creating stability. She stressed that HP’s presence in the software market was "to solve tough customer problems… not to transform HP into a software company". Infrastructure was the core of HP, she added: "The DNA of this company is infrastructure."

But I wonder if HP could do worse than follow what’s left of the Apothekar blueprint which was, to a large extent, based on IBM’s strategy for when it got out by selling its PC business to Lenovo. And look how that turned out.

While Wall Street, HP shareholders and the board may have balked at what they perceived to be Apothekar’s drastic attempt to overhaul the vendor’s business in a dramatic and potentially disruptive fashion, I wonder if they really think the path forward he outlined is so wrong? Perhaps the real difficulty they had was over the speed of that transition.

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