​HP's first quarter lesson: Breaking up isn't cheap

"When you tear apart a company that's been built up over many years through acquisition, through different systems being merged together, it's remarkable what you find," says HP CEO Meg Whitman.

Hewlett-Packard is in Wall Street's dog house for mixed first quarter results and a disappointing outlook, but CEO Meg Whitman pointed out that the company is playing to win. The big question is how long it will take for HP's strategy to play out even as it splits into two units.

First, it's worth noting why HP shares are being whacked on Wednesday and down nearly 10 percent. HP's revenue for the first quarter was $26.8 billion, down 5 percent from a year ago and below the $27.34 billion expected. HP said currency fluctuations were a big problem (that's a standard issue these days). As for the outlook, HP's fiscal year and second quarter will also miss expectations. Free cash flow for fiscal 2015 was projected to be $3.5 billion to $4 billion, well below previous projections of $6.5 billion to $7 billion.

That free cash flow outlook is what really spooked investors. It's worth noting that HP is expecting $2.4 billion in separation costs for fiscal 2015. That price tag is more than what analysts such as Wells Fargo Maynard Um were expecting.

Overall, HP's quarter was fairly standard issue. HP saw strength in its enterprise group with server sales and converged storage. Consumer PC demand was strong as notebook sales surged 9 percent from a year ago. The printing unit delivered 19.2 percent operating margins. However, networking sales took a hit due to "execution issues" in China and the U.S. and enterprise services struggled.

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The broader question is whether HP can separate the consumer and enterprise halves of the company, retool structures and create two Fortune 50 companies without disrupting customers or succumbing to the fear, uncertainty and doubt spread by rivals.

Whitman explained:

We are making real progress on the separation. Recall that we are separating into two Fortune 50 companies. It's sort of hard to imagine there are two Fortune 50 companies embedded in HP. That has included an entire organizational design and selection process, the IT strategy, carve out financials and many other activities, and I think, actually, that we are executing on all cylinders.

So lots and lots of work ahead but I feel good about where we are. It has surfaced lots of opportunities for continued cost savings and the ability to operate more efficiently. When you tear apart a company that's been built up over many years through acquisition, through different systems being merged together, it's remarkable what you find. And whether it is single owners for end-to-end cost structure, the ability to benchmark versus our competitors on how many spans and layers we have, the ability to make small changes in the portfolio that we want to go forward with, lots and lots of opportunities. That's going to make as much stronger as we go forward as two independent companies.

Future quarters will determine whether Whitman's take is on target. HP has so many moving parts: The cloud business, a white-box server partnership with Foxconn, 3D printing efforts in the future and tough competition in everything from storage to PCs to networking.

On the earnings conference call, HP touted a Deutsche Bank win that included the company's enterprise unit, software division, cloud and services. The Deutsche Bank deal is an example of HP's "One-HP" efforts. The catch is it took nearly two years to land that deal.

It remains to be seen whether HP can win with a One-HP approach when it is actually splitting into two companies.