HP: Five landmines ahead for 2012

HP: Five landmines ahead for 2012

Summary: There are no quick fixes for HP. Here's a look at five particularly worrisome areas for HP in 2012.

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HP's fourth quarter showed that the company has stabilized, but the outlook for 2012 indicates that there are multiple landmines ahead.

In fact, the longer HP CEO Meg Whitman and CFO Cathie Lesjak spoke on an earnings conference call the more it became obvious that revenue growth may be a mere memory for the next few years. Whitman said HP was delivering an outlook for earnings, but not revenue. She added that HP will have to grow organically too. There won't be any bold acquisitions to save the day.

Related: HP holds it together in Q4, but cuts outlook

Add it up and there are no quick fixes for HP. Instead, HP has a bevy of landmines to navigate and oddly enough the PC unit isn't one of them. Here's a look at five particularly worrisome areas for HP in 2012. HP's mainstay enterprise server, storage and networking unit is starting to sputter. Revenue for the unit was down 4 percent from a year ago and it is seeing the "effect of a slower economic environment." This division carried the company in recent quarters.

The Itanium business probably isn't coming back. Fourth quarter sales of HP's business critical systems---the Itanium-based Integrity server line---were down 23 percent from a year ago. Oracle and HP are dueling in court over Itanium and it's impacting sales. Even if HP and Oracle settle, it's unlikely customers will flock to Itanium now. Without Itanium, HP has no proprietary processor at the high end of its server lineup. IBM has Power and Oracle has Sparc.

HP Services' operating profit is falling. HP didn't invest in services and now margins are taking a hit. Whitman said:

I think it's really important to level set everyone that this is a journey that's going to take some time and I think it's more appropriate to think about the services as more of a turnaround so turnaround that's measured, success is measured in years as opposed to quarters.

In other words, this chart may look worse before it gets better.

Consumers are cutting back on ink. HP's imaging and printing business is a cash cow, but it's a much smaller on than it was just a year ago. Imaging and printing revenue for the fourth quarter was $6.32 billion, down from $6.99 billion a year earlier. Earnings from operations was $808 million, down from $1.22 billion. CFO Lesjak said ink revenue fell 14 percent in the fourth quarter and channel inventory remained high. "Supplies revenue closely follows economic cycles. Sell out continued to be impacted by softness in consumer demand as a result of continued pressure on unemployment globally and was below our expectations in the quarter," said Lesjak.

The research and development pipeline. HP is at least three years away from funding innovation that will fuel the company's growth. Whitman laid out the R&D picture. Whitman said:

I think the investments we make in 2012 you'll start to see in 2014 and 2015. I wish I could tell you differently but it's not true and you're right. We cut out a lot of muscle in R&D at this company and we have to invest back in it and so it's a long term play. We are now building HP; we're building it to last. We aren't building it for next month or next quarter. We are building this Company to be great over the next decade. You'll see improvements every single year. You'll be able to measure us on how we're doing but we're making long term bets here because we just can't continue to run this company for the short-term.

The problem for HP is that it competes in a space where IBM invests heavily in R&D every year with 6 percent of revenue. Even Dell is increasing its R&D spending. For fiscal 2011, HP spent 2.5 percent of its revenue in R&D.

Topics: Emerging Tech, Banking, Enterprise Software, Hardware, Hewlett-Packard, Processors

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25 comments
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  • RE: HP: Five landmines ahead for 2012

    The bulk of HP's easy profit has been from selling over-sophisticated, overpriced printers - and obscenely overpriced ink/toner, relying on the fact that the buyer was usually spending company money and the company required Rolls-Royce standard printing equipment. As business has slowly wised up to the scam, HP branched out frantically into new markets, and has a 75+% rate of total bodge-up. Of course, they blame it on customers 'cutting back on ink' - but it's mostly the market cutting back on HP; how many corporate customers have they lost lately, and how many new have they won? Even government services, renowned for their stupidity in purchasing value for money, have smelled the coffee (at last), and are leaving HP in droves.

    Having belatedly realized that putting a man on Mars was maybe the wrong move, they have retrenched from many doomed initiatives at panic speed, destroying their largely unearned 'good name' in the process. They have been outplayed in almost all their Internet ventures, and have been slow to recognise the obvious.

    HP is a busted flush, and will probably be asset stripped, sorry 'dismembered' within a year. They had it all, and they blew it.

    I have no interest in the company (or its competitors), nor own any of their products; my post is based on my observational skills - not much skill required in this scenario, alas.
    Heenan73
    • RE: HP: Five landmines ahead for 2012

      @Heenan73

      Well said - I have a HP 4MV printer in my home office manufactured in the early 90's that still works! Compare that to the crap consumer printers HP puts out now. I also have a recent Canon Pixma that is built as well as the old HP and never gives me a problem (I refill the inks too).

      This is what 5 CEO's in 6 years, all with different visions, gets you. It's my understanding that Hurd fired all the top engineering talent because they were the highest paid so the current plan for long term innovation may be a rough road.
      alexh1@...
      • RE: HP: Five landmines ahead for 2012

        @alexh1@...

        Actually, this is what 5 CEO's in 6 years; whose only desire was to increase short term profits at the expense of long term investments.

        Those clowns are nothing more than overpaid hired help who do not give a s--- about HP's long term prospects. "Get the numbers up for the next quarter!" was their mantra. Cut costs, and now look where HP is!

        I would put the blame solely at the feet of the stockholders; they are the ones who voted in the BoD, and by their inaction, allowed HP to slide into the cesspool.

        It is one reason why I would never work for a publicly owned company; the C levels get changed about as often as you would change your underwear. At least with a privately owned company, you get to know who has `skin in the game`.
        fatman65536
    • RE: HP: Five landmines ahead for 2012

      @Heenan73 HP is also loosing customers by droves with extremely poor customer service. They talk a good game, but when it comes down to actually doing it, they not only back away, the evade and run away. They haven''t learned (even at the top) that bad customer sevice is what took down a lot of companies and will contribut to the downfall of HP. That is too bad. They really did make good (if overpriced) prineters. Thei computers - not so good/
      sysdev@...
    • RE: HP: Five landmines ahead for 2012

      @Heenan73 Well said. I'm on my second HP printer this one being a HP officejet Pro L7590 The machine works great but the memory chip they put into the ink cartridges has been a bug up my *ss for years. They just don't want you refilling them. I did find a way to do it but my machine gives me all kinds of warnings that I'll lose my warranty for using outdated cartridges.
      Because of that my next machine will be something else.
      If they add up all their small customers they will find the we contribute a lot more than they think. Also we work for their big customers and give input on the machines we want to work with. Payback is a b*tch ain't it?

      Hey HP, Scrap the chip and drop the price of the ink if you want to sell anything to me or anybody I know.
      Rick Sos
  • Wow

    Dell does R & D?! You learn something every day.
    Monkeypox
    • RE: HP: Five landmines ahead for 2012

      @Monkeypox

      Repackage & Distribute? :)
      Biotechguy
      • RE: HP: Five landmines ahead for 2012

        @Biotechguy

        I thought it was `Repair & Disassemble`.
        fatman65536
  • RE: HP: Five landmines ahead for 2012

    ....
    butter44
  • RE: HP: Five landmines ahead for 2012

    The first land mine was hiring the right ceo. I feel they have failed. This chick/broad just rode the wave at ebay. She has nothing.
    butter44
    • RE: HP: Five landmines ahead for 2012

      @butter44 Here's one thing I like about her. She is reconciled to rolling up her sleeves and working hard instead of making flashy news buying up lesser companies. That's what I take growing the company "organically" to mean. Imagine, a CEO willing to actually work for a change! I'm holding on to my shares.
      nikacat
  • bad processor, bad OS

    Yes their processor is doomed, and their OS (HP-UX) isn't going well.<br>But they don't need that to do business (DELL has neither. Compaq strived without)<br>If they had some guts they'd build high end Linux/intel platforms (that's the TOP100 anyway, people know the system and it's rich)<br>and perhaps innovate with low-power ARM architecture for the other end.
    Power consumption in the datacenter is a key problem...
    pweltz
  • RE: HP: Five landmines ahead for 2012

    If their business computers are as bad as their consumer versions, I can see why everyone is avoiding them.
    inetcnslt@...
  • RE: HP: Five landmines ahead for 2012

    My last HP printer was a very nice LaserJet, was it 5L...? (10 years ago?) After that, inkjets from Epson and now Canon as well.... I still would prefer laser but they are still very heavy and the multifunctionals cumbersome.
    DAS01
  • RE: HP: Five landmines ahead for 2012

    http://i530.cn/UW

    http://i530.cn/UW

    http://i530.cn/UW
    ladgfie
  • RE: HP: Five landmines ahead for 2012

    New stuff coming down the pipeline for HP that seems to have been forgotten.. Memresistor, Low powered High Density Servers, Super X86 Servers...
    Although the stock has been battered, just wait for these to see the light, and it will be bright.
    HardTruth
  • Re: HP/3Com

    HP bought 3Com and did.... Nothing. Absolutely nothing. Zip. Zero. Zilch. How long ago was this? "We'll be integrating and leveraging the technology from that purchase into HPs own line of networking equipment..." If you want to leverage technology, do you buy a worldwide-known name, and then drop it in the gutter?

    HP are being run by the accountants, and they have no idea how to R&D, invest or even see beyond the next 3 months. All they can do is save, cut costs, reduce spending, delay payments to suppliers and attempt to increase margin in struggling products.

    IBM saw this, and did something about it. Can HP? Given their current multinational approach to anything - you want an order supported? That'll be 4 or 5 countries involved, then - it's a miracle anyone understands what anyone else has to say. Credit is due to the employees for that.

    I understand what they are trying to achieve. I just can't see how it is going to work.
    gjm123
  • RE: HP: Five landmines ahead for 2012

    HP over priced, over stuffed w/ trial ware quit buying HP build my own computers , get what what i want, no stuffing.
    rgriffin1@...
    • Aren't they all???

      @rgriffin1@... Not overpriced - HPs are the most decently priced PCs on the market for what you get, which is pretty good. I've owned HP/Compaq laptops for years, never a problem with a single one (I do build my own workstations, fwiw). As for trialware, name me one PC maker that doesn't include crapware/trialware, unless it's custom-built & costs an arm & a leg. Let's not forget, HP is the leader in consumer PCs, small as their profit margin might be. I've also never had an issue with support, unlike other PC makers out there (when I have to do work for my clients, HP is by far the easiest to work with, in my experience).

      No, I don't work for HP, I run my own support business & support several clients, several PC makers, loads of configurations & peripherals, etc.

      To be fair, HPs ink is way overpriced, but every other printer manufacturer also gouges the consumer (businesses as well) on ink prices. What these companies should do - all of them - is to license their ink/cartridges to other manufacturers for a reasonable fee & allow these 3rd party manufacturers to produce high quality compatible ink at a reasonable cost, especially for older models, while at the same time cutting back on support for older models & supporting only the newest ones in terms of consumables. This would cut down on support & manufacturing costs internally, but still allow support for printers that can last well over 10 years (I still use an HP LaserJet 4 - how old is that? - & it runs just fine).

      No one listens to the voice of reason though - oh well...
      rmazzeo
      • RE: HP: Five landmines ahead for 2012

        @rmazzeo I agree with you - HP products are fine. We have bought their cheaper business desktops, laptops, servers, switches & printers for the last 10 years or so and have rarely had a problem. Toners & inks are no pricier than any of the other manufacturers' offerings, and they always work well. I agree that contacting customer services in the Philippines can sometimes be patience-testing but at least the operators are friendly, and a lot less aggressive than their Dell (UK & Ireland) counterparts.
        john@...