HP said Wednesday that it is swapping executives in its enterprise services unit and taking an $8 billion charge to write down goodwill associated with the division. HP also noted that more employees are taking early retirement packages than previously expected.
In a statement with a bevy of moving parts, HP said that its non-GAAP earnings in the third quarter would be better than expected. However, HP's reshuffle of the services unit as well as the goodwill charge indicate that the company hasn't quite figured out how to compete with IBM. HP Enterprise Services revenue, which accounts for 28 percent of the company's total sales, has been flat for multiple quarters as operating profits have fallen.
First, the financial picture. HP said it will write down $8 billion in goodwill associated with its services division. HP said that its stock price as well as services business trend led to the write-down.
On a non-GAAP basis, which is what Wall Street watches, HP said its third quarter earnings will be $1 a share, up from the 94 cents a share to 97 cents a share previously forecasted. Wall Street was expecting third quarter earnings of 97 cents a share. Under general accounting principles, HP will report a third quarter loss between $4.31 and $4.49 a share.
HP also said that it will take a pre-tax charge of $1.5 billion to $1.7 billion in the third quarter related to layoffs and restructuring. HP had projected restructuring charges of $1 billion. What happened? HP employees are taking early retirement packages in droves. "The change is primarily driven by a higher than anticipated acceptance rate under its early retirement program and faster than expected implementation of the workforce reduction program," said HP.
As for righting the services ship, HP said that Mike Nefkens, general manager of HP Enterprise Services in EMEA, will lead the company on an interim basis. John Visentin, who used to lead the services unit, will leave to pursue other interests. Jean-Jacques Charhon, senior vice president and chief financial officer of HP Enterprise Services, will become chief operating officer for the division.
HP said it made the executive swaps to bolster service innovation, profits and customer satisfaction.