HP's move to cut 27,000 jobs, reinvest in research and development (R&D) and generally get the company on better footing sounds promising on paper. Unfortunately for HP's CEO Meg Whitman, too many people have heard this before.
In other words, there's a lot of scepticism about whether HP can get its innovation mojo back. To recap, HP posted better-than-expected earnings and announced a restructuring. To its credit, most of the restructuring savings will go to R&D. Former CEO Mark Hurd cut 50,000 jobs in five years, and cut R&D.
Whitman said on HP's earnings conference call:
I would say that our performance began to stabilise. We saw some bright spots. There's still an awful lot of work to be done, and we're looking at every option to accelerate the pace. As discussed during our Q1 call, we are working very hard to better align HP's cost structure with its revenue profile. We're streamlining and removing complexity at every turn, and, in the process, we're creating the capacity to invest in innovation and quality. And over time, we're of course thinking about how we can drop some of our savings to the bottom line.
HP shares are up a bit the day after the company's results, but few analysts are calling the turnaround. In fact, HP's restructuring is being portrayed in some camps as a move that won't alter the reality thatthe company could be facing businesses stuck in a secular decline.
Here's a sampling of the post-game analysis after what appears to be a positive first step for HP.
Barclays analyst Ben Reitzes
HP's revenue, earnings, annual guidance and overall commentary were all better than expected heading into this report, especially given Dell's comments just a day ago. While we believe any turnaround will be a multi-quarter effort for HP, investors are likely to see this report as a positive first step. That said, in the context of demand deterioration in Europe, and secular pressures still in many businesses into 2012, we still believe it may be too early to make the call for a sustainable turn.
The big concern: HP's software business reported revenue of US$970 million, well below his estimates. Turns out Autonomy's business fell off dramatically. Autonomy chief Mike Lynch will leave to be replaced by Bill Vegte. HP spent US$11 billion for Autonomy and "its rapid shortfall is troubling", said Reitzes.
Deutsche Bank analyst Chris Whitmore
We note that past restructurings (50K headcount reduction over five years under Hurd) have done little to improve HP's competitive position, or reduce its reliance on declining or troubled businesses (printing, PC, Itanium, etc), nor improve its market-share trajectory in storage or servers. We therefore adopt a "wait and see" approach to this latest round of restructuring and its impact in overturning deteriorating company fundamentals. Barring a significant change in strategic direction, we anticipate protracted declines in HP's three major businesses (services, printers, PCs).
The big concern: "Looking forward, services will likely remain under pressure for several quarters due to reduced headcount and poor competitive positioning (competitive bidding, attracting and recruiting higher margin service capabilities, re-investment, etc)," said Whitmore.
Evercore analyst Rob Cihra
HP has already taken more than US$5 billion in restructuring charges over the past seven years, and yet we think its competitive position has only eroded. In fact, from an innovation and value-add standpoint, we tend to think HP already cut "too" far, and yet is now going back to the well. When including amortisation, the gap between HP's GAAP and non-GAAP earnings just keeps getting wider, having already jumped to US$3.3 billion in FY11 versus US$2.1B in FY10, all while cash flow keeps declining.
The big concern: erosion will hit all of HP's key businesses. "We see erosion across practically all of HP's consumer and commercial PC, printing, enterprise and services businesses."
Via ZDNet US