HP quarterly earnings plunge as PC confusion bites

Profits fell 91 percent in the fourth quarter, weighed down by the decision to stop selling WebOS-based devices and the now-reversed plan to separate off HP's PC division
Written by Ben Woods, Contributor

HP's decision to abandon WebOS-based devices and slow PC sales contributed to plummeting profits in the fourth quarter, as the company struggled to set a clear course for its consumer device business.

HP Touchpad

HP has reported a sharp drop in its earnings in the fourth quarter, following its decision to dump WebOS and the Touchpad tablet (pictured), as well confusion around its consumer PC business. Photo credit: Jason Hiner

On Monday, HP reported a drop in fourth-quarter earnings of 91 percent year-on-year, from $2.5bn (£1.6bn) to $239m. In the three-month period ended 31 October, revenue fell three percent, from $33.3bn to $32.1bn, in comparison with the previous year.

The company attributed the decreases to a number of factors, including the decision to discontinue its WebOS unit, falling demand for consumer PCs and multiple natural disasters, including the earthquake in Japan.

"We took a total charge to operating income of $788m. This was associated with the wind-down of our WebOS device business," Catherine Lesjak, chief financial officer at HP, said during an investor conference call.

In August, HP announced it was killing off all of its WebOS devices, including the TouchPad tablet and the Pre family of smartphones as part of a partial or full separation of its market-leading PC business — the Personal Systems Group (PSG) — from the rest of its business.

Chief executive Leo Apotheker, who directed the shift, was ousted by HP's board in September, after confusion over the future of the company led to a 44-percent drop in its share price. Meg Whitman, who replaced Apotheker, reversed the decision to sell or spin off the PC business in October.

Consumer business

The company's consumer PC business suffered from a lack of demand and lower unit prices, which hurt the company's bottom line, Lesjak noted.

We didn't live up to our expectations in 2011. We need to get back to doing what we do really well.
   – Meg Whitman, HP

"Consumer client revenue was down nine percent versus the year-ago quarter, with notebooks seeing a bigger decline than desktops," Lesjak said. "Total units shipped were up two percent year-over-year, but with average selling price declines, we saw no growth in desktop revenue [year-over-year] and a four-percent decline in notebook revenue. Both form factors continue to be affected by weakness in consumer demand."

A question mark still hangs over the WebOS platform, which HP picked up in its purchase of Palm in July 2010. While there are rumours that HP is looking for a buyer for the mobile OS, expenses related to the deal still figured heavily in the results. In the earnings call, Lesjack said HP took an impairment expense of $885m "against a carrying value of goodwill and purchased intangible assets related to the acquisition of Palm".

Full-year results

Alongside its fourth-quarter results, HP reported earnings for the full fiscal 2011. In the year, the company saw profits decrease 19 percent, from $8.8bn to $7.1bn, and revenue inch up one percent, from $126bn to $127.2bn.

On the earnings call, Whitman apologised to shareholders over the confusion within the company but was cautiously optimistic for the future, re-affirming her commitment to PSG.

"We didn't live up to our expectations in 2011. We need to get back to doing what we do really well, being the reliable, trusted partner with whom our customers want to work and delivering the reliable, consistent results that all of you can count on," Whitman said.

"It's going to be important to provide as much clarity as possible about our future, because over the course of last year and certainly on our last earnings call in August, we confused customers, employees, shareholders and partners on one fundamental issue around HP's strategy," she added.

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