HP Reports Year-End Financials

HP Reports Year-End Financials

By: Mike Huster
 
December 11th, 2013

Hewlett-Packard’s (HP) results for the fourth quarter, ending October 31, were decent. Revenue was down, gross profit was down, and operating income was down, but there was joy in Palo Alto with some segments showing turnaround tendencies. “Through improved execution, strong cost management, and the support of our customers and partners, HP ended fiscal 2013 on a high note,” HP CEO Meg Whitman said in a company statement.

HP posted $29.1 billion in fourth-quarter revenue, a three percent decline from the fourth quarter of 2012. On a constant currency basis, the decline was one percent. The company’s net income in the quarter was $1.95 billion, a 14 percent decline from the year-ago quarter but a major improvement compared to the last two quarters of 2012. The firm’s operating income as a percentage of revenue increased to 9 percent from 8.4 percent in the third quarter.

Our View
Whitman has said that 2014 will be a “pivotal year” for the company and the turnaround she began when taking over as CEO over two years ago is “on track.” HP is not out of the water yet and still has a long road ahead. It is rebuilding itself yet many of its businesses continue to struggle with either secular decline affecting the entire industry or management taking its collective “eye off the ball.” The maxim, “plan your work and then work your plan,” puts the ball in HP’s court.

Does H-P need an investor like Icahn?

SAN FRANCISCO (MarketWatch) — As unconfirmed rumors swirled on Monday that investor Carl Icahn was buying up shares of Hewlett-Packard Co., its shares rallied, mostly on the prevailing theory that any activism at this point would be good to put pressure the embattled tech giant. 

But it’s still worth asking if indeed Icahn would even be interested in amassing enough of H-P’s HPQ +1.72%   stock to get any kind of a voice or seat on the board. If he did, would he help or hinder Chief Executive Meg Whitman’s effort at a turnaround? Read about H-P and Icahn rumors.

There are divergent views on this hypothetical question. It boils down to what should be done to turn around the fallen tech behemoth. If you are in the camp that believes that H-P’s parts are worth more separately than as a whole company, the presence of someone like Icahn, who was instrumental in the eventual spin-off at Motorola, now part of Google Inc., GOOG -0.10% , could be just the thing investors need.

Reuters

Would Carl Icahn, or an investor like him, be a good thing for H-P?

Icahn’s office did not return a call seeking comment and H-P declined to comment to a MarketWatch reporter.

UBS analyst Steve Milunovich has been advocating that H-P needs to break itself up, and predicted in early October that such a possibility will be prompted by activists or private-equity investors. 

“In our view, full value won’t be realized by just improving operations — structural change is required,” Milunovich wrote in a note. “H-P with its fully developed enterprise and consumer businesses should split up in order to realize greater value.” Read The Tell about Milunovich’s view.

H-P, though, has not embraced this point of view. Whitman appears to be trying to focus on getting the company’s various operations in order, at the same time that the personal computer business is getting hit by the growth in tablets and smartphones. Under the very brief tenure of former CEO Leo Apotheker, H-P looked at possibly spinning out or selling its PC business. He also killed Palm, which H-P purchased to get a foothold in tablets and smartphones. Apotheker wanted to grow software instead. Under Whitman, H-P decided to keep its PC business in tact. 

An outside investor like Icahn — or someone else — could argue that the corporate business, which includes services, servers, and software, does not need to be attached to PCs and printers. Other have argued, however, that the company gets more purchasing power when buying for all the hardware businesses at once. 

Some have also used IBM Corp.’s IBM -0.12%  turnaround, which mostly kept the tech giant together, as an example that H-P should follow. Milunovich argued that IBM is the wrong model in H-P’s case. Because H-P has fully developed consumer and printer businesses, it should be split apart. It’s also worth noting that if IBM is the model some would like to mirror, IBM sold its PC business to Lenovo of China in 2004. And before Lou Gerstner started the turnaround of IBM as its first outsider CEO, the company had already spun out its printer business, which is now Lexmark International Inc. LXK -1.32%

 

The other issue, however, is that H-P already has an activist investor on its board, albeit a silenced one. Ralph Whitworth of Relational Investors LLC, joined H-P’s board in November 2011, after he had accumulated over 17 million shares of the company. As part of the deal, Whitworth agreed not to publicly seek H-P’s sale or merger or spin off any of its assets.

Would another activist investor like Icahn want to get involved with a company that already has one activist on its board? 

Eric Jackson, founder of Ironfire Capital, said H-P is a tough situation for any activist investor.

“It would be tough for anyone right now,” Jackson said in an e-mail. “There are no silver bullets.” He also added that he did not think that “the styles of Icahn and Whitworth mesh well either.”

If Icahn is actually buying up H-P shares, investors will learn soon enough. But whether he or any other daring activist, could be an agent of major change, as some would hope, is a bigger question.

 

Therese Poletti is a senior columnist for MarketWatch in San Francisco.

HP Sails Into Perfect Storm for Printers

by Arik Hesseldahl

August 6, 2012 at 12:58 pm PT

Pop quiz: When was the last time you bought a printer? Or an ink cartridge? Or a package of printer paper? Of course, the answer is going to vary from one situation to another, but chances are you’re using a printer a lot less often than you used to.

It’s not hard to see evidence of that wider trend in the results of several companies in the printer and printer supplies business. In a research note out today, analyst Chris Whitmore of Deutsche Bank Securities looked at sales trends over the last 10 quarters at printer companies including Canon, Epson, Lexmark, Xerox and Hewlett-Packard and found that combined sales for equipment and supplies were down 6 percent year on year.

Additionally, sales of printing equipment during the last year have declined similarly, which is a bad sign for sales of supplies as they tend to lag sales of hardware by nine to 12 months and are more often than not the profit-making end of the business. Another indicator, sales of printer paper (specifically A3 and A4 paper) fell 6 percent in the second quarter to levels that are 20 percent below their historical peak in 2006.

Whitmore’s conclusion: The use of printed pages is on what appears to be a permanent decline that could only accelerate as tablets like the iPad and others like it get more popular. “Simply put, the content that was once printed for distribution or portability is now simply being distributed or shared electronically,” he writes.

All of the companies in Whitmore’s survey have already reported their earnings this quarter, except for one: Hewlett-Packard, and it reports its quarterly results on Aug. 22. When we last heard from HP, revenues in its imaging and printing group had decreased by nearly 9 percent, or more than $1 billion, for the six-month period ending April 30, down to $12.4 billion. Leading that decline was a 6 percent drop in sales of supplies, which may not seem important until you realize that sales of supplies have historically amounted to about $17 billion a year, or more than two-thirds of HP’s $25.7 billion revenue in the printer business.

It’s not the first time this trend has been so apparent: HP’s printer fortunes looked very stormy indeed ahead of another earnings report earlier this year.

This decline was at least one of the reasons that HP CEO Meg Whitman combined the company’s printer business unit with the personal computer unit under Executive Vice President Todd Bradley. Selling printers and PCs together, the thinking goes, creates an opportunity to save on costs that are otherwise duplicated.

But there may be other more fundamental changes coming to the way the printer business operates. In an interview with AllThingsD in June, Bradley hinted at such changes, especially around ink products, and indicated the company might reconsider cutting some money-losing printer models on the low end.

No one expects HP’s quarterly results to be particularly good. In fact, the consensus view of analysts surveyed by Thomson Financial calls for it to report overall sales that declined by about 3 percent year on year.

And the future doesn’t look any brighter, especially as the decline in printing extends into the workplace. Companies like Xerox and Lexmark have tried to minimize the damage by turning printing into part of a wider document and work-flow management service. But these services may fall victim to tightening corporate IT budgets. As Whitmore puts it: “From an enterprise standpoint, printing is increasingly a cost to be managed lower rather than area of spend or investment. Although many enterprise print vendors are competing via managed print services engagements, this trend speaks to the discretionary nature of spending on printing. As such, we suspect it will be the most vulnerable to future spending cuts.”