Shares of HP rose by more than 13 percent to $24.09 as of 10:15 am ET. The catalyst was yesterday’s quarterly earnings report that contained better-than-expected profits amid sales that fell short of consensus forecasts by more than half a billion dollars. Analysts this morning are questioning whether or not the company can maintain the veneer of progress toward a turnaround in the quarters ahead.

“Shrinking your way to profitability buys time but doesn’t equal a turnaround,” was the headline on a research note from Chris Whitmore of Deutsche Bank Securities this morning. With revenue down by 10 percent year on year, and sales in major business segments declining between 1 percent (printing) and 20 percent (personal computers), HP’s success this quarter and last appears to have been more about minding its cash flow and costs carefully, and less about selling more of the goods and services that make it money.

“HP is sacrificing market share, delaying research and development investment and the financial benefit of past restructuring actions to support near-term profitability which in our view is not sustainable,” Whitmore wrote.

Whitman explained yesterday, both in a conference call with analysts and in an interview with AllThingsD, that HP walked away from deals to sell PCs and servers that didn’t contain enough profit. It had the result of yielding some of its market share ground — HP leads the world in both PC and server sales — to Dell.

“Unsustainable,” appeared to be the word of the day among analysts covering HP. It also appeared in a note from Goldman Sachs analyst Bill Shope, who reiterated his “sell” rating on HP shares. HP’s exposure to “distressed end markets” will eventually overwhelm whatever actions it may take in the short- to medium term. Brian White of Topeka Capital Markets also maintained a “sell,” advising shareholders that yesterday’s 13 percent after-hours surge on HP’s share price represented an opportunity to do just that.

Hoped-for growth from sales of new products like Project Moonshot and new networking products are good, but even that success may not be enough replace the revenue that’s being lost, worries Evercore analyst Rob Cihra. “Low-power Moonshot servers, higher-end printing and software-defined networking all help but much more seems needed to move such a massive needle,” he wrote in a note to clients today. “Hopes for FY13 stability otherwise just appear to flow from deep restructuring cuts.”

Brian Marshall of ISI presented a similar view in a note to clients: “As global economic growth softens and PCs and printers face secular decline, it will be challenging for large technology vendors such as HP to find significant sources of new growth that can move the needle on approximately $110 billion of annual revenue.”

When surveying analysts on the subject of HP, it doesn’t take long to return to the notion of a breakup. HP is worth more in pieces, the argument goes, than as a unified company. That’s what will happen if HP isn’t able to turn the corner soon enough, argues Toni Sacconaghi of Sanford Bernstein, in a note today. While Sacconaghi has an “outperform” rating on HP shares, based on its prospects for improvement over the next six to nine months — an opinion he explained in detail on CNBC yesterday — he remains convinced that, after that, HP will either fix what’s broken or break itself up.

But in a short phone interview with AllThingsD, CEO Meg Whitman and CFO Cathie Lesjak reiterated what they said on a conference call with analysts: Progress has been made, but there’s still a lot of work to be done.

AllThingsD: Meg, let’s talk about the state of the competitive environment. We heard some pretty tough results from Dell last week, and you said on the call that HP was choosing to pass on some deals in order to protect profit margins. Tell me a little more about that.

Whitman: For the long term, profitability remains a focus for us because we can’t afford to let our profitability crater the way Dell did. We have to have the ability to invest in the next generation of PCs and servers and software. It was a tough quarter. We walked away from several deals and lost some share. But it felt like we did the right thing in going after the deals that were the right deals for us. There were also some execution issues. We have to make sure we have the right product for the right customers at the right price point. And particularly at the low end, I think we could do a better job there. But overall I’m reasonably pleased that we made the right decisions in the PC business.

Dell was also making a lot of noise about industry standard servers and how it took some share away from HP. Was it a similar dynamic in servers as it was in PCs?

Whitman: Yeah. We saw what happened to Dell’s earnings. They were down 75 percent. If they were a publicly held company that was trading freely in absence of a buyout number, the stock would be down by 50 percent. It would be ridiculous. We are a publicly held company and we have to invest in the long haul. So we had to choose to walk away from some deals in hyperscale and industry standard servers and PCs that didn’t make sense for the company. I feel like we did the right thing, but there’s always something you can learn from these things.

How do you feel about competing against a privately held Dell versus a publicly held Dell? We saw some indication of how it might behave in the marketplace this quarter. Do you think you’re going to have more of this aggressive pricing behavior and so on?

Whitman: I don’t know exactly how their behavior is going to change. But remember, they’re loading a lot of debt onto the company. And remember how LBOs work. The key is to pay off the debt quickly so you can take the company public again and make a lot of money. We’ll see if they remain as aggressive as they have been. But frankly, this is just a competitive business. We have a lot of competition. We have shown that we can win over time whether it’s against Acer or other manufacturers that we beat out. So if it’s Dell or anyone else, we have to have continuous improvement. We have to invest in the right products. We have to streamline our go-to-market strategy, we have to constantly refine our supply chain and we have to be more agile. And that is just part of being in the business.

Lesjak: And we’ve shown that by being No. 1 in the market for industry standard servers for many, many years now, and we’ve been competing against Dell that entire time.

Cathie, there was a lot of talk on the call about reducing HP’s debt. Give me a look ahead as to what changes when that debt comes down to approaching zero, then what happens?

Lesjak: It frees us up to step back and look at what we want to do with the cash we’re generating, and we want to make sure we’re making the right kind of investments. Those investments may be in buying back shares, or capital expenditures, or research and development to get us on track for the future, or to make small M&A deals. And we want to evaluate these all on a returns basis, both in the near term and in the long term. Because you really need to do both. Some decisions will be based on the near term and with some we’ll be willing to wait a long time for the returns because they’ll be worth it. This is actually one of those moments when we’re going through a lot of product transitions, where the new style of IT products are coming in and the older style products are going away. And what we really want to be able to do, instead of having to manage big transitions, we want to get through them more quickly and that means that you have to invest for the short term and long term.

Whitman: I’ve been saying this a lot lately: You have to plant acorns before you have oak trees. And I think with a lot of the CEO transitions, we didn’t plant enough acorns. And now we’re paying that price.

So part of the impression I got from this quarter and last is that you’re able to beat the Street expectations in part because you’re able to manage your cash flow very tactically. You did well with cash flow for the first half of the year and you said on the call that you don’t expect it to remain as strong in the second half. With the macro environment remaining so weak, I come away thinking that your success is really less about products and lines of business and right now more about managing and taking out costs. Is that fair?

Lesjak: I’d sum it all up to operational excellence. You have to do this all the time. I mean, we’re in a competitive industry. Margins are tight and you have to be maniacally focused on managing your costs every minute, and making sure you’ve got the right product in the right place at the right time. I think this has to be part of the DNA of the company. There’s no moment when you exhale and then you get to spend more. This is about being focused all the time and bringing that discipline to the company. Now in the second half we have some extraordinary cash payments to make around taxes and restructuring payments. As well as some cap-ex that we think will be good investments for the future.

Is there any indication that the macro environment is going to improve? We’re seeing the worst environment for PCs pretty much ever, and IT spending generally isn’t looking so good. Do you sense any improvement in either?

Whitman: From a macroeconomic perspective, which is what drives IT spending across small businesses, medium ones and big enterprises, I think the environment remains about the same. I could be wrong here. We don’t see any improvement coming in Europe and we don’t see an improvement in the U.S. So we’re not counting on those as tailwinds or headwinds, but really more of the same. PCs are a little different. PCs are a subset of personal systems, and as you know that business is growing generally with all the tablets and mobile devices. It’s possible the PC growth rate doesn’t decline as much. It may continue or it may flatten. The objective is that when it starts to flatten out, whose is the company with the best products and the company best-positioned to gain share. We want it to be us.

Lesjak: Taking advantage of the fact that tablets are a growing segment, you really look at HP’s position in tablets, and that will improve significantly in the second half of this year. We’ve got the Slate 7 Android consumer tablet and the Elitepad commercial tablet. Those ramp in the second half, so we’ll have some help on the top line. Not so much in the PC business but personal systems.

Project Moonshot launched during the quarter and there’s a sense that there’s a lot of hope riding on that product. When does it start shipping in earnest for revenue? Is that a 2014 story?

Lesjak: It really ramps in the second half of this year but it’s more of a 2014 story. The real material benefit is 2014 and 2015. IDC has done some projections that the Web and cloud services business will grow about 19 percent in 2016. So that works out to about 8-10 million servers between now and then. So that’s the market that Moonshot is going after.

Whitman: You also have to remember that the ramp is slower with these enterprise products than with the consumer products. Big enterprises need to bring them in and do a proof of concept and see what workloads they want to run on them. And then they have to prove it out. Enterprises move more slowly, but when they move, they move big. But the ramp is slower than the the consumer product.

What’s your biggest priority for the rest of the year now, Meg?

Whitman: We continue with our restructuring program. We said it was going to be a three-year program, and we’re about halfway through that timeline. So there’s more work to do there. And to Cathie’s point, it becomes part of the DNA. This is what we do in the normal course of business. We also have to manage the transition between the new products and the older products. We’d like to accelerate the growth of the new products if we can.

And you said on the call, despite all these market headwinds, you think you can grow next year.

Whitman: We do. We continue to believe that growth is possible next year. You’ve got to remember, we’re doing this amid some of the biggest transitions that have hit the IT industry in a generation. The macro environment is not going to help. The delayed runoff in enterprise services helps this year but hurts next year. But we think we can grow. It depends on a lot of different factors. To be clear, we expect EPS growth in 2014 regardless.

What’s your latest thinking on Autonomy? Is that part of the operation where it should be?

Whitman: I think Robert Youngjohns and his team have done a great job of stabilizing Autonomy. We’ve put in some systems that were lacking and we’ve changed our go-to-market. We’ve invested in R&D jobs there. We had 50 openings for research jobs there recently and I suspect that most of them have been filled by now. So I’m pleased with the progress. That team went through a lot, so I have to give them a shout-out. They had some difficult circumstances. And I’m pleased with what they’re doing. I think you’re going to see Autonomy grow in the next few quarters.

You still having fun, Meg?

It is fun. The senior team feels like they’re making a difference. The turnaround is on schedule. Obviously there are lessons learned every quarter, but we feel good about where we are.

A conference call with analysts concluded just a little while ago. On it, CEO Meg Whitman and CFO Cathie Lesjak reiterated that the turnaround roadmap they outlined at a meeting last year is still going about as expected, and that it is and will remain a multi-year plan. They’ve focused a lot of energy on paying down HP’s debt and improving its operations while making the investments to inject new life into its products lines.

There were also questions about HP’s decision to avoid fighting Dell in the PC business over pricing. Dell has recently said it was getting aggressive in order to take share, while HP has apparently decided to hold on to its profit margins at the expense of sales volume.

It will also be worth listening for hints of and adjustments in the strategy and timing of the turnaround plan put in place by CEO Meg Whitman and outlined at last year’s analyst’s meeting.

Also, HP earlier today released a video with Whitman summarizing the highlights of the quarter’s results.

Here’s a partial transcript of the conference call.

2:06 pm: Joining the conference call in progress. Meg Whitman is speaking. She just said that Europe will continue to be challenging and that China is starting to slow down.

Meg says revenue run-off in Enterprise Services will be slower than expected and will affect overall revenue in 2014.

In the Enterprise Group: Converged infrastructure is the future. Also, the two server groups are being merged into one. Project Moonshot lost during the quarter, but it will “take time to ramp.” But she’s confident that it will work to HP’s advantage without cannibalizing the existing server business.

In networking, HP is a strong number two after Cisco Systems, and its switching revenue is as much as the next five competitors combined, she says.

In software, Autonomy is stabilizing, and Vertica is looking good. The business is “well positioned.” Autonomy landed All Nippon Airways as a customer.

Now she’s speaking about areas where HP’s performance needs to improve. PCs is an area where it needs to fight harder. In mainstream servers, HP suffered from the conditions of the market and was tripped up “by our own execution.”

In PCs, “We stepped away from many deals to protect our bottom line.”

One key difference between the first half of this year and the first half of last year was that the PC industry roared back to life after hard drive supplies were disrupted by the flooding in Thailand.

2:16 pm: Whitman: “Overall our turnaround made progress in the second quarter.”

Now CFO Cathie Lesjak is speaking, and she’s running through the numbers again.

“IT spending softened and the macro-environment clearly did not improve.”

Revenue in most geographic regions was all down.

Software was down some as the industry is shifting to SAAS, Lesjak says.

2:29 pm: Revenue was down in financial services.

Lesjak is now talking about capital allocation and the balance sheet: We delivered more than $5 billion in the first half of the year, which is ahead of our previous guidance. But we do not expect this pace to continue.

Outlook: We remain confident in our ability to manage our cost structure. We are still on track to achieve the savings we’ve planned, but some business units are using these savings.

Moonshot launch was very successful, but we are not pleased with performance of x86 server sales. Printing continues to perform well.

Generally Lesjak expects lower restructuring expenses. “We now expect 2013 free cash flow to be about $7.5 billion.”

2:35 pm: Now time for Q&A. First question is from Katy Huberty of Morgan Stanley. Do you still think you can get to revenue neutral in services?

Whitman: We are rebuilding ourselves amid some of the most profound changes to hit the technology industry in a generation. The slower run-off in revenue will hurt us, but if 3Par and other business units perform as we expect, we expect to grow in 2014, but there will still be headwinds.

Whitman talked about some options for capital allocations. She says it’s mostly going to be “returns based,” meaning a bias toward share buybacks and dividends, and not M&A activity.

Question from J.P. Morgan. Again about services. What is your confidence in the planned services leakage events happening in 2014? Can you still unwind these planned attrition events? Basically he’s asking if some ineffective service contracts will get fixed.

Whitman: There is some predictability coming that was not there in 2012. “The control of this business is feeling better than it did before.”

Whitman: “We are fixing a lot of the problems that are keeping HP from being great. … This takes time. This is an enormous organization.”

Question from Sanford Bernstein: Could you clarify your plan for balancing profitability vs. growth? What is the near to medium term focus on share or profitability?

Whitman: We’re here to set this company up for the long term. In ISS (industry standard servers) we did walk away from some deals that weren’t profitable. In terms of Technology Services, one big headwind was the attach rate of support to sales of Business Critical Services (BCS, a.k.a. the Itanium server business).

Lesjak: We may well be more aggressive in pricing on an industry standard server if we’re getting attached to TS. We’ll take a lower margin based on the complete picture, and the long-term outlook on the account.

Question from Shannon Cross. More color on currency effects. Also pricing on the printer front from the Japanese companies.

Lesjak: Currency is about a point to revenue. It had been two points. “HP is exposed to a whole basket of currencies, and we have different hedging strategies.”

2:49 pm: Lesjak: We think our cost savings in the second half are creating a war chest for our Japanese competitors.

Whitman: We’re going to use that opportunity to fight back. Our competitors are more cost competitive because of what has happened to the yen.

Whitman: “The days of ever-escalating IT budgets in government are over.”

3:03 pm: That’s it. Thanks for tuning in.

Per-share earnings were 87 cents, down 4.4 percent from a year ago on sales of $27.6 billion, which amounts to a decline of 11 percent from last year.

The results are better than the consensus view of analysts, which had called for EPS of 81 cents on revenue of $28.12 billion.

The company said it expects to earn between 84 cents and 87 cents per share in the current quarter and to earn between $3.50 and $3.60 per share for the full year.

As expected, PC sales were pretty bad, with sales down 20 percent and a decrease in volume of 21 percent, which was much worse than Dell’s results reported last week. The PC unit generated a 3.2 percent operating margin.

Printing revenue declined by 1 percent, though operating margins were up to nearly 16 percent. Sales of commercial units fell 5 percent year over year (I think that’s unit sales basis) and consumer units fell 13 percent.

Revenue in the enterprise group declined 10 percent. Networking grew 1 percent. Server sales were down 12 percent in the industry standard group, while business critical servers — the ones using Intel Itanium chips once so crucial to HP’s profit profile — were down 37 percent. Storage revenue fell 13 percent.

Enterprise Services fell 8 percent. Software sales were down 3 percent.

HP said it finished the quarter with $13.6 billion in cash, and had $3.6 billion in operating cash flow. It paid a dividend of 14.52 cents per share, up 10 percent from a year ago.

HP shares are rising in after-hours trading. As of 4:17 pm ET, they were at $23.78, up 12 percent from the close of today’s regular trading session.

Here’s HP’s original announcement.

PALO ALTO, CA–(Marketwired – May 22, 2013) – HP (NYSE: HPQ)
Second quarter non-GAAP diluted earnings per share of $0.87, down 11% from the prior year, above previously provided outlook of $0.80 to $0.82 per share
Second quarter GAAP diluted earnings per share of $0.55, down 31% from the prior year, above previously provided outlook of $0.38 to $0.40 per share
Second quarter net revenue of $27.6 billion, down 10% from the prior year and down 9% when adjusted for the effects of currency
Cash flow from operations of $3.6 billion, up 44% from the prior year
Returned $1.1 billion in cash to shareholders in the form of dividends and share repurchases
Improved operating company net debt position by $1.8 billion, the fifth consecutive quarterly reduction of over $1 billion
Declared a regular quarterly cash dividend of 14.52 cents per share on the company’s common stock

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

HP today announced financial results for its second fiscal quarter ended April 30, 2013. Second quarter GAAP diluted earnings per share (EPS) was $0.55, down from $0.80 in the prior-year period and above its previously provided outlook of $0.38 to $0.40 per share. Second quarter non-GAAP diluted EPS was $0.87, down from $0.98 in the prior-year period and above its previously provided outlook of $0.80 to $0.82 per share.

Second quarter non-GAAP earnings information excludes after-tax costs of $621 million, or $0.32 per diluted share, related to restructuring charges, amortization of purchased intangible assets and acquisition-related charges.

For the second quarter, net revenue of $27.6 billion was down 10% year over year and down 9% when adjusted for the effects of currency.

“We beat the upper end of our non-GAAP diluted EPS outlook for the quarter by $0.05 per share, driven by better than expected performance in Enterprise Services and Printing, coupled with the accelerated capture of restructuring savings and improvement in our operations,” said Meg Whitman, HP president and chief executive officer.

Outlook

For the third quarter of fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $0.84 to $0.87 and GAAP diluted EPS to be in the range of $0.56 to $0.59. Third quarter fiscal 2013 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.28 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

For the full year fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $3.50 to $3.60 and GAAP diluted EPS to be in the range of $2.50 to $2.60, in line with HP’s previously communicated outlook. Full year fiscal 2013 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.00 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

“I am encouraged by our performance in the second quarter, and I feel good about the rest of the year,” added Whitman. “As I have said many times before, this is a multi-year journey. We have a long way to go, but we are on track to deliver on our fiscal 2013 non-GAAP diluted earnings per share outlook.”

Asset Management

HP generated $3.6 billion in cash flow from operations in the second quarter, up 44% from the prior-year period. Inventory ended the quarter at $6.0 billion, down 2 days year over year to 26 days. Accounts receivable of $14.6 billion, down 1 day year over year to 48 days. Accounts payable ended the quarter at $12.3 billion, up 4 days year over year to 53 days. HP’s dividend payment of $0.132 per share in the second quarter resulted in cash usage of $283 million. HP also utilized $797 million of cash during the quarter to repurchase approximately 36.3 million shares of common stock in the open market. HP exited the quarter with $13.6 billion in gross cash.

“After returning more than a billion dollars to shareholders through share repurchases and dividends in the quarter, we improved our operating company net debt position for the fifth successive quarter,” said Whitman. “By the end of fiscal 2013, we expect our operating company net debt to be below pre-Autonomy levels and approaching our goal of approximately zero.”

Declaration of Dividend

HP also today announced that the HP board of directors has declared a regular cash dividend of 14.52 cents per share on the company’s common stock, which, as previously announced, reflects a 10% increase in amount compared to the previous quarterly dividend amount. The dividend, the third in HP’s fiscal year 2013, is payable on July 3, 2013, to stockholders of record as of the close of business on June 12, 2013.

Second Quarter Fiscal 2013 Segment Results

Personal Systems revenue was down 20% year over year with a 3.2% operating margin. Commercial revenue decreased 14%, and Consumer revenue declined 29%. Total units were down 21% with Desktops units down 18% and Notebooks units down 24%.

Printing revenue declined 1% year over year with a strong operating margin of 15.8%. Total hardware units were down 11% year over year. Commercial hardware units were down 5% year over year, and Consumer hardware units were down 13% year over year.

Enterprise Group revenue declined 10% year over year with a 15.9% operating margin. Networking revenue was up 1%, Industry Standard Servers revenue was down 12%, Business Critical Systems revenue was down 37%, Storage revenue was down 13% and Technology Services revenue was down 3% year over year.

Enterprise Services revenue declined 8% year over year with a 2.6% operating margin. Application and Business Services revenue was down 10% year over year, and IT Outsourcing revenue declined 6% year over year.

Software revenue was down 3% year over year with a 19.1% operating margin. Support revenue was up 12% while license revenue was down 23% and services revenue was down 5% year over year.

HP Financial Services revenue was down 9% year over year with a 3% decrease in net portfolio assets and a 24% decrease in financing volume. The business delivered an operating margin of 11.0%.

More information on HP’s earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.

HP’s Q2 FY13 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2013Q2webcast.

At the outset, it seems a tall order. Name a significant line of HP’s business and it’s probably in the middle of one sort of fundamental slowdown or another. Whether it’s the historical decline in PC sales, a weak environment for server sales, a lousy market for printers or ongoing difficulties with its enterprise services business, HP has troubles in all four. Together, these troubled units accounted for about 92 percent of HP’s sales last quarter. Add to the mix a significant exposure to Europe, where the economy remains weak, and it becomes incredibly difficult to feel hopeful for a pleasant surprise in HP’s results today.

Whitman and CFO Cathie Lesjak have been clear in past public statements that there are no quick fixes for HP. And its rivals are taking advantage. Dell unleashed a bit of a price war on the PC front, cutting prices aggressively in order to take some market share ahead of its anticipated $24.4 billion go-private transaction.

While Dell is willing to sacrifice profitability, HP doesn’t seem to have responded, and so may have missed some sales. As Chris Whitmore of Deutsche Bank Securities wrote in a note to clients yesterday, “It appears HP is sacrificing share to protect near-term margins.”

Dell has also been bragging about its ability to take market share away from HP on the server front.

What HP has got going for it: Aggressive cost management. Remember that HP surprised the Street with better-than-expected cash flow in the first quarter of the year, giving the appearance that the promised turnaround had begun in earnest. But much of that surprise came from a one-time tax benefit that added a half-billion dollars to operating cash flow. That is unlikely this quarter, so Whitmore is worried that cash flow may come up short: “The combination of cash restructuring payments, headwinds from revenue declines in PCs impacting working capital and cash cycle and the absence of favorable factors in Q1 (tax deferrals, bonus payments, etc) may result in worse than expected cash flow,” he wrote.

Analysts expect HP to report 81 cents per share on sales of $28.12 billion. A miss on either the top or bottom line will probably freak out shareholders impatient to see some tangible sign that, despite having survived the worst year in its history, HP can yet be salvaged, and that Whitman is the one to get the job done. HP shares opened up slightly this morning at $21.21 a share.

I talked about all this a little this morning on CNBC. The video is below:

After last week’s huge earnings miss by Dell and news last month about the first earnings miss in eight years by IBM, it’s hard to imagine a scenario where HP’s circumstances look any rosier than they did three months ago. Whitman and CFO Lesjak will probably make an effort to remind shareholders and analysts that the turnaround they’ve been promising isn’t expect to become apparent until sometime in 2014.

Analysts are expecting HP to report per-share profits of 81 cents on sales of $28.1 billion and to forecast earnings of 84 cents or better on sales of $27.8 billion for the quarter ending in July.

Here’s the rundown of rough spots hitting other companies that will probably factor in to HP’s results:

• PCs: Sales of personal computers are showing the largest declines since records have been kept. HP remains the world’s largest vendor of PCs, which accounted for more than 28 percent of sales last quarter. Especially aggressive pricing by Dell hasn’t helped.
• Printers: The other category where HP leads the world, its printing business, accounted for $5.8 billion or more than 20 percent of revenue last quarter. Weak results from Lexmark and Xerox don’t augur well for HP generally. A recent product refresh by HP might help a little.
• Enterprise: Server sales are likely to be under pressure along with PCs and printers. Dell executives including CEO Michael Dell have been talking publicly about how Dell the company appeared to gain share in recent reports by IDC and Gartner. On Wednesday we’ll see if they’ve been speaking too soon. If they are, then expect weak results from the Enterprise Group, which accounted for 24 percent of HP’s sales last quarter.
• Enterprise Services: HP has been re-investing in the services group, the group largely made up of the former technology services firm EDS, and those investments aren’t expected to pay off anytime in the near future. As Chris Whitmore of Deutsche Bank Securities wrote in a note to clients today, “Increasing the size and depth of HP’s Services bench will likely take multiple quarters before translating into improving market share performance. As a result, we continue to expect a long, slow turnaround.” The unit accounted for more than 20 percent of sales last quarter.

First off, Dell has moved up the date of its report. Originally set for May 21, the results will come after markets close in New York today and a conference call with analysts will start at 1:45 pm PT.

The reason for the change likely has a lot to do with the fact that Dell is probably going to report another miss on its consensus numbers. Analysts polled by Thomson Financial expect Dell to report a 35 cent per-share profit on sales of $13.5 billion. But as The Wall Street Journal reported Monday, Dell expects to announce profits of about 20 cents on $14 billion in sales, a huge bottom-line miss.

It’s difficult to expect much else. Despite all the efforts made in recent years to nudge Dell in the direction of becoming a more enterprise-focused company via acquisitions in the areas of cloud computing, software and services, Dell still derives about 70 percent of its sales, give or take, from consumer or commercial PCs or PC-related accessories like monitors. And as we all know, PC sales are plummeting at a historic rate.

That’s not to say there aren’t potential bright spots. CEO Michael Dell has been crowing about the company’s success in server sales and has described market share losses by rival Hewlett-Packard as “staggering.”

Then, of course, there’s the ongoing saga of Dell’s quest to go private in a $24.4 billion buyout transaction with Silver Lake Partners. Carl Icahn and Southeastern Management, which between them control about 13 percent of Dell shares, are opposed and this week made their own counter-offer, and then nominated a slate of directors to replace Dell’s current board. Icahn has made no secret that he’d like to send Michael Dell packing. The special committee of Dell’s board overseeing the buyout process has asked the Icahn camp for more information.

Certainly there will be questions for management about all of it, though the answers from Dell management will probably be some variation of “no comment.”

By 7:30 pm ET, Cisco shares had risen to $23.06, having closed at $21.21 during the regular session. Its results, reported earlier today, were only slightly ahead of the consensus view, but as with so many things today, slightly good is good enough.

The better news is that Cisco has historically been a pretty good barometer on the state of the tech economy generally. What it sees in its results, good or bad, is what other companies usually see within a couple of quarters.

“Slow and steady growth” was the phrase of the day. Sales grew by slightly more than 5 percent, but several segments grew faster. Service revenue grew by more than 7 percent year on year, while sales of products grew 5 percent.

Products sold into data centers, mainly servers in Cisco’s UCS line, grew by a healthy 77 percent, but accounted for only $515 million, or slightly more than 4 percent of sales. Wireless sales grew by 27 percent, but at $523 million weren’t much bigger as a percentage of revenue.

Service provider video grew 30 percent, accounting for nearly $1.3 billion in sales. And at least part of that growth can be attributed to NDS, the Israeli software company for which Cisco paid $5 billion last year.

In switching, Cisco’s biggest business segment, sales were $3.4 billion, down 2 percent year on year, but when you compare that to the results of other networking companies like Juniper, Riverbed and F5 Networks that have been reporting more difficult quarters in recent weeks and months, a drop of 2 percent isn’t so bad.

I just got off the phone with Cisco CEO — and D: All Things Digital speaker — John Chambers. A quick summary of our conversation is below:

AllThingsD: John, it felt like a fairly positive quarter in a tough environment. What’s really going on?

Chambers: I’d break it into four pieces. First, it was our ninth consecutive quarter with record revenue. And it was the sixth where earnings grew faster than revenue. That’s a pretty good indicator that we’re growing well in a tough environment. Secondly, we’ve moved from being the No. 1 communications company to having a shot at being the No. 1 IT company at the moment when those two things will actually combine. … It’s that transition that we now have in front of us that’s kind of exciting. It also says that we’re in the right technologies: Cloud, data center, mobility, video. We’re also the thought leader on the Internet of everything, which will be the next major transition for the enterprise and service providers. The fourth one was the geographic breakdown. I don’t think anyone saw as strong a set of numbers in the U.S. as we did, and it was across all market segments. Public sector grew 5 percent, enterprise grew 10 percent, commercial grew 13 percent, service providers grew 10 percent. It means that our relevance is changing. It also means that, barring a surprise, the U.S. economy is going to continue to recover at this pace. And it has to for the rest of the world to come out of all this.

Let’s talk about IT. If you’re becoming more of a general IT player, if you see yourself shaking up that business, then who do you see yourself taking business away from?

In the data center, it’s clearly the IBMs, the Hewlett-Packards and the Dells of the world. In the wireless space, it’s often the startups or some of the traditional players. It wasn’t so long ago that startups like Aruba were awfully tough on us. In the data center with software and hardware and silicon coming together, there’s the people who think it’s going to be a software-only world [like Big Switch --Ed.]. We think it’s an architectural play that we’re going to win on. So our competitors are different in every category, but that’s what you want. If the customers are going to buy an architecture that solves a business problem and you’re the only major supplier that crosses the service provider and the enterprise and commercial segments, and you go from the cloud and hybrid clouds to the data centers, and reach any device and you’re agnostic about whatever device it is, that is a strong position to be in.

And still one of your biggest segments, switching, was down slightly. What’s going on there?

It has been a tough environment there. As you know, our industry peers have had terrible year-to-date numbers on their stocks. When I look at the F5s and Junipers and Riverbeds of the world, you’re seeing them surprising the market and declines in their share prices. Same thing with the IT players. We’re one of the few players that hit and exceed expectations in that category. So it speaks to our relevance changing. If you’re selling standalone products, the market gets really tough. And speaking of our competitors, a lot of them said they never saw us coming. We’re pretty good at flying under the radar at first and then blowing right by, and then being tough. We’re really tough to beat.

It’s at this point that I pick a song that I think best portrays Cisco’s results. It has become a little tradition that I began when Cisco started to turn around after another sequence of disappointing quarters, and when we talk, Chambers always asks about it.

With the phrase “slow and steady” appearing so much in Chambers’ comments, and with the quarter’s results generally feeling upbeat, I thought the muscular 1971 Aretha Franklin classic “Rock Steady” fit the bill. Here it is.

The Times report quotes SAP co-CEO Bill McDermott as saying that HP had asked if SAP might be interested in buying Autonomy. The story isn’t clear on when the conversation between HP CEO Meg Whitman and McDermott took place, other than to say it was before Whitman visited London last month and said that Autonomy was not for sale.

I just got this statement from HP on the matter:

“Contrary to reports in the media, HP has no interest is selling Autonomy. During the past year, we’ve received inquiries from SAP about purchasing HP software assets, and time and again we’ve said ‘no.’ We believe Autonomy will play an important role in HP’s long-term strategy.”

I also reached out to SAP spokesman Jim Dever, who tried to walk back what the Times reported based on what he says McDermott actually said in the interview with reporter Nic Fildes:

“If you look at the quote, Bill doesn’t say anything other than we were aware when Autonomy was on the market. I was part of the conversation, and he never mentioned discussions with HP. In fact, he never said we were approached by HP.”

Sources familiar with the conversations tell me that since HP is such a big SAP customer — something its operational head John Hinshaw mentioned in a recent interview with AllThingsD — Whitman and other HP execs routinely meet with McDermott and his co-CEO, Jim Hagemann Snabe, CTO Vishal Sikka. She’s also met with founder Hasso Plattner, where they also discussed, among other things, HP’s naming rights to the HP Pavilion, home of the National Hockey League’s San Jose Sharks.

These sources tell me that the conversations on the topic of Autonomy potentially changing owners, if you could even call them conversations, were so informal as to be almost meaningless. “Autonomy was never shopped to SAP,” one source told me emphatically.

It’s not the first time chatter has emerged about potential buyers interested in taking Autonomy off HP’s hands. In January, there were reports that HP was getting “expressions of interest,” but HP quickly slapped them down.

And there is indeed a school of thought that Autonomy would have a more natural home within SAP. Former HP CEO Léo Apotheker had previously been a co-CEO at SAP, and before he was fired had steered HP toward becoming more of a software company. If SAP is trying to engage HP on the subject of selling Autonomy, it may be because it simply doesn’t like the idea of HP being in the software business.

HP is still a relatively new player in software, which accounted for a little more than $4 billion in sales last year, or 3.3 percent of HP’s total revenue of $120.4 billion. Small, but growing enough to constitute being considered a rare bright spot at HP. HP’s sales grew 43 percent from 2010 to 2012, though that includes the addition of the Autonomy business.

Update: After further reporting, I’ve updated the story above to reflect which SAP executives Whitman has met with. It turns out she hasn’t met with Jim Hagemann Snabe after all.

Robison, already a director at Fusion, was also named its chairman. Rick White, the company’s chief marketing officer, also resigned.

Flynn, the company’s statement said, is resigning in order to pursue “entrepreneurial investment opportunities,” and White will be joining him.

Fusion shares are trading down by 16 percent in premarket trading. As of 8:43 am ET, the quoted price was $14.99, down more than $3 from Tuesday’s closing price of $18.

At HP, Robison was chief strategy officer, in charge of most of that company’s mergers and acquisition strategy. He led numerous deals, including, but not limited to, its 2002 acquisition of Compaq, as well as deals for Mercury Interactive, Opsware, EDS and 3Com.

But since he was the first senior exec to depart HP after Meg Whitman took over in the fall of 2011, Robison, along with former CEO Léo Apotheker, was seen as the one who took a fair amount of the blame for the ill-advised 2011 acquisition of the British software firm Autonomy. Some would argue, however, that HP chose to throw Robison under the bus.

Update: The fall in Fusion shares is continuing. With a minute to go before the opening of markets in New York, Fusion-io shares are indicating lower by nearly 25 percent. The current price quoted as of 9:29 am ET was $13.52.

Here’s the company’s press release:

Shane Robison Named Chairman and Chief Executive Officer

SALT LAKE CITY — May 8, 2013 — Fusion-io, Inc. (NYSE: FIO) today announced that Shane Robison has been named Chairman, Chief Executive Officer and President, effective immediately. Mr. Robison, who is a director of the Fusion-io Board of Directors, succeeds David Flynn, who has resigned as CEO and President to pursue entrepreneurial investing activities.

The company also announced that co-founder, Rick White, has resigned as Chief Marketing Officer to join Mr. Flynn in early stage investing activities. Messrs. Flynn and White will both remain members of the Board and will serve in advisory roles to the company for the next 12 months.

Mr. Robison, 59, has more than 30 years of experience in senior business management and product development roles with some of the world’s leading technology companies, including AT&T Labs, Cadence Design Systems and Apple. He most recently served as Executive Vice President and Chief Strategy and Technology Officer of Hewlett-Packard Company from May 2002 until November 1, 2011.

“Shane Robison is a proven executive with the experience and expertise to lead Fusion-io as we enter our next phase of growth and development,” said Scott Sandell, lead independent director of the Fusion-io Board. “Over the course of his career, Shane has demonstrated an ability to develop the critical corporate strategies to help innovative companies scale and grow globally. Shane’s understanding of our business, significant international experience, and deep industry and partner relationships make him ideally suited to lead Fusion-io as we seek to accelerate the company’s strategic and financial goals to enhance shareholder value.”

“I am honored to lead Fusion-io through its next chapter of growth,” said Mr. Robison. “Fusion-io has long been recognized for its visionary technology, and I look forward to working closely with the company’s talented team as we continue to develop the critical technology that we all rely on to deliver the world’s data faster. As the use of data grows, IT professionals need more effective and efficient ways to power their business-critical applications. Fusion-io has an incredible opportunity to continue to transform the software defined storage industry. Our customer relationships are strong, and working with the company’s exceptional management team, I am excited to lead Fusion-io.”

“On behalf of the Board and entire Fusion-io team, I want to thank David and Rick for their significant contributions to the creation, development and growth of the company,” said Mr. Sandell. “David and Rick’s vision as co-founders has redefined memory technology and had a profound impact on our industry. Under their leadership, Fusion-io has developed into one of the world’s leading technology companies, helping businesses increase datacenter efficiency. They played an important role in taking the company public and developing a strong framework from which Fusion-io can grow to the next level.”

Fusion-io noted that today’s announcements are not related to any issues regarding the integrity of the company’s financial statements or accounting policies and practices.

Business Outlook
Fusion-io reaffirmed the financial outlook it provided on April 24, 2013 for the fiscal fourth quarter of 2013, before giving effect to any costs associated with the departures of Messrs. Flynn and White.

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

Fourth quarter of fiscal year 2013:

· Revenue is expected to be approximately $110 million.

· Non-GAAP gross margin is expected to be 56 to 58%.

· Non-GAAP operating loss of approximately $5 million.

· Diluted shares outstanding are expected to be approximately 98 million shares.

Fiscal Year 2013 guidance:

· Revenue is expected to be approximately $435 million.

· Non-GAAP gross margin is expected to be in the range of 58 to 60%.

· Non-GAAP operating margin is expected to be approximately 9.5%.

· Diluted shares outstanding are expected to be approximately 109 million shares.

About Shane Robison
Shane Robison, 59, has served as a director of Fusion-io since December 2011. Mr. Robison served as Chief Strategy & Technology Officer and Executive Vice President of Hewlett-Packard Company from May 2002 to November 2011. From 2000 to May 2002, Mr. Robison served as Senior Vice President, Technology and Chief Technology Officer of Strategy and Technology of Compaq Computer Corporation. Prior to joining Compaq, Mr. Robison served as the President of Internet Technology and Development at AT&T Labs. Prior to AT&T Labs, Mr. Robison was Executive Vice President, Research and Development, and then served as President of the Design Productivity Group at Cadence Design Systems. Mr. Robison also spent seven years at Apple Inc., where he held a series of executive-level positions, leaving the company as Vice President and General Manager of the Personal interactive Electronics Division. Mr. Robison’s experience includes work at Schlumberger’s research groups in Silicon Valley, at Evans & Sutherland Computer Corporation and consulting for the University of Utah in the area of database systems architecture. Mr. Robison also serves as a director of Altera Corporation. Mr. Robison holds a B.S. and a M.S. in Computer Science from the University of Utah.

According to sources close to the situation, well-known tech exec Jon Rubinstein will be joining the board of Qualcomm, the San Diego-based chipmaker that has gotten a big boost of late for its role in the explosion of mobile devices.

Rubinstein is an interesting and logical choice for Qualcomm, having been a high-profile player for a long time in the mobile space, beginning with his work on the iPod while at Apple. After he left his last job at Hewlett-Packard last year, though, he has been very low-key.

(Update: Qualcomm confirmed the appointment in a press release.)

For Qualcomm, the selection of Rubinstein to join the board is something to watch, as he is the second exec from Silicon Valley to be tapped by the company recently. In March, Qualcomm hired tech investor Laurie Yoler as SVP of business development, making her “responsible for augmenting existing business relationships in Silicon Valley, as well as developing new strategic business opportunities for Qualcomm in the region.”

Rubinstein has even more experience here and is also familiar with a range of mobile efforts over the years, some of which were successful and others not so much, from his work at Apple, Palm and then HP. He is also a board member of Amazon.

Aside from CEO and Chairman Paul Jacobs, Rubinstein — who has degrees in electrical engineering and computer science — will be the most technically experienced director on the 11-person board.

Qualcomm declined to comment.

Here’s a nice primer on Rubinstein by Arik Hesseldahl, in a report on his leaving HP early last year:

Best known for his work on Apple’s iconic iPod music player, Rubinstein left Apple in 2006 and joined Roger McNamee as a partner in the private equity firm Elevation Partners, following its 2007 investments in Palm.

In 2009 he replaced longtime Palm executive Ed Colligan as its CEO, and oversaw a dramatic restructuring of the company’s products, including a significant rebuild of its smartphone operating system. Gone was the legacy PalmOS that had been used in so many popular devices like the Treo that for a time competed seriously against Research In Motion’s BlackBerry.

PalmOS was replaced by WebOS, which first appeared on the Pre smartphone, then later on the Pixi and Veer devices. After HP acquired Palm, WebOS was also used on the abandoned TouchPad tablet, and is now an open-source operating system overseen by HP.

Rubinstein’s departure is no big surprise. Sources said he hadn’t been seen at HP’s offices following the decision by former CEO Léo Apotheker to get out of the business of making WebOS-based hardware. His future plans have been the subject of speculation for some time.

After HP decided to exit the WebOS hardware business, Rubinstein was assigned to a vaguely described “product innovation role” within HP’s Personal Systems Group during a management shakeup last July. It was an unusual move and one made with little explanation at the time. But sources say it was a preface to Rubinstein’s departure, one intended to lessen its PR impact when he finally left. “That ‘innovation’ gig he was given in July was his first step toward the exit,” said one source, a former Palm exec with close ties to Rubinstein.

On Friday afternoon, Dell gave an interview to the trade publication CRN (which used to be called Computer Reseller News) crowing about his company’s apparent share gains in the market for servers.

What got him excited was preliminary data (as in, not yet published) from the market research firm IDC, which followed similar findings from another research firm, Gartner (again, not yet published), that supposedly shows healthy gains for Dell and big losses at HP.

According to the numbers Dell shared with CRN, IDC found Dell — No. 2 in the worldwide server market — to have grown its share of the server market to nearly 28 percent, while HP’s fell from north of 35 percent a year to slightly below 31 percent. “HP is losing share at a staggering rate, and they are losing it to Dell,” Dell proclaimed.

HP, which had led the segment for the better part of two decades, didn’t respond to Dell’s claims. But it did respond a day earlier, after Dell enterprise chief Marius Haas gave a similar interview — again to CRN — claiming similar data from Gartner. “One quarter does not a trend make. … 17 years is a trend,” retorted Jim Ganthier, a marketing exec in HP’s server group.

Dell hasn’t bothered to wait for either research firm to finalize and publish their data, and I’ve asked both firms to comment on that. I’m no expert in the processes these firms follow, but from what I understand, execs at companies like Dell, HP and IBM see these “preliminary” figures before they get published in order to give the company a chance to dispute them if they vary from what’s really going on. When Gartner and IDC get around to publishing press releases, expect Dell to make a second push on this topic, and maybe give more interviews.

Dell naturally has an urge to pounce on HP and score a few punches. HP has been using the occasion of Dell’s $24.4 billion leveraged-buyout plan to create uncertainty among Dell customers. Way back on Feb. 5, when the buyout plan was first floated, HP issued a statement saying, “Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”

With IBM said to be in on-again, off-again talks with China’s Lenovo to sell its industry-standard server business, and Dell going private, HP is arguing that it is the one major vendor not engaged in a significant corporate shake-up, and thus able to focus most on its customers’ needs. Indeed, HP’s Dave Donatelli led a major Webcast with HP partners last week, touting that very message.

Neither company’s shares are really responding to any of the trash-talking today. HP shares are up slightly this morning to $20.76 a share, while Dell shares are also up a little to $13.35, or about 30 cents below the $13.65 buyout price that Michael Dell and private-equity firm Silver Lake have offered to take the company private.

Hewlett-Packard made a big move in that direction today, announcing a series of switches that support OpenFlow, open source software that makes routers and switches programmable and thus a lot more flexible.

The news gave me an opportunity to catch up with Bethany Mayer, HP’s senior vice president and general manager for networking. We talked about HP’s plans around SDN:

AllThingsD: Bethany, put simply, what is SDN all about, as HP sees it?

Mayer: The idea is that we’re trying to create more automation, less constraint, and have the network be more abstracted so that there are few manual processes in the data center. It’s meant to bring more simplification and flexibility to the data center. In all of these products we have enabled OpenFlow. We now have 40 platforms that are OpenFlow-enabled. And we have about 20 million ports out there in the marketplace today that are OpenFlow-ready.

How is the state of HP’s networking business, generally?

Backward-looking, we now have 13 quarters of year-over-year growth under our belt. So we’ve continued to grow the business. Our SDN strategy is getting a lot of interest in the industry. I just recently spoke at the Open Networking Summit. The amount of interest has been very high. We had about 60 customers in our SDN beta, and they’re really excited about the applications we’ve created. No one else has created a security application, a load-balancing application, so things have been very good.

And how do you see the competitive landscape? HP is a distant No. 2, but a solid N0. 2 to Cisco Systems. Do you see yourself taking business away from Cisco, or is it more complicated than that?

We’ve continued to take market share in the industry over the last several quarters, and we’ve also maintained our No. 1 position as an enterprise networking vendor in China.

And HP tends to play mostly in the enterprise networking space, but you don’t play in the carrier-class and telecom networking market where Cisco tends to dominate, correct?

That’s correct, however I would say that with this virtual services router that we just announced, that offers us some inroads in the service provider market, because there are new capabilities they are looking for, something called network services virtualization, where they are trying to virtualize functions like routing and switching, security and load balancing. The capabilities that we’re bringing to the table with this announcement makes them very interested. This allows them the ability to move toward virtualizing their networks, and avoid the amounts of money they pay for their expensive proprietary switches and routers. Our focus for disrupting the networking industry is via open standards and simplification. That’s generating strong interest from the service providers. They don’t want to spend the money on the more expensive switches and routers. The point is to help these customers break the proprietary lock, help them make their networks more agile, and meet the new needs of their networks.

Let’s start with the headline: Dancers Are Not Pirouetting Through Our Cubicles! The upshot, HP will not be dancing its way to a corporate turnaround.

The story goes like this: HP, troubled on many fronts after the worst year in its history, and trying mightily to ignite a turnaround in the face of declining PC sales and a troubled environment for global technology spending, was reported in a story published by CNNMoney.com to be hiring a troupe of dancers to help its employees get their creative juices flowing.

Penned by Cheryl Strauss Einhorn, a freelance contributor to CNNMoney who also happens to be the wife of hedge fund manager David Einhorn, the story portrayed HP as a “lumbering tech giant that desperately needs new ideas.” It went on to detail how Von Hansen, a general manager for “future technologies” based at HP’s campus in Boise, Idaho, had since 2008 been working on a quarterly basis with the Trey McIntyre Project, a local dance troupe. Its mission at HP, according to a quote by Hansen in the story: “… Pull our staff out of the same way we do things so that we can better design solutions and solve problems.”

So far, so good, except that the story went on to list the price the dance troupe supposedly charged HP for each quarterly engagement: $20,000 for a half-day presentation.

And what does the fee cover? Something you might expect in the flakier corners of San Francisco or Brooklyn, or perhaps in an episode of “Glee,” but not the cultural backwater of Idaho. (Outraged Idahoans, save your emails; I lived there, I know.) Dancers would show up at HP headquarters, sometimes expected, sometimes unannounced, and start dancing right next to employee cubicles.

Dancers would then teach employees the dance they had just seen, so that they might learn “the translation of verbal cue to action.” The dancing would then segue into a discussion about the creative process. These corporate engagements, the story reported, are responsible for about a third of the dance group’s $2.25 million annual operating budget.

Inspired yet? Neither were HP’s understandably irritable shareholders, who quickly started complaining in comments on the story:

“This is why I hate management. They ignore the REAL problems (among them, low employee morale because they haven’t had pay raises in YEARS), but have no problems dropping $20,000 for half a day of dancing whackos. Management is CLUELESS …” wrote one commenter.

“Dear employees. I regret to inform you that we will not be doing raises again this year and are still in a hiring freeze,” wrote another. “Sad to have to inform you that your health insurance did rise again by 8 percent and your workload has increased. On the other hand we do have some people that will be spending half a day dancing outside your cube for the low price of only $20K so be happy and think creative! Think outside the box then go back to your cube.”

Others railed against the apparent irony of HP — which last year announced a wide-ranging restructuring plan, including the elimination of some 29,000 jobs — being able to afford to employ a group of dancers, but not able to keep people working.

None of it sounded right to HP executives, who did some internal checking and found that it had never hired the dance troupe to do anything.

The extent of HP’s relationship with the dance troupe appears to be that it was invited to dance at the Boise campus on a day when local charitable groups — the Trey McIntyre Project is a not-for-profit organization — solicit contributions from employees.

HP complained to CNNMoney, which has since altered the story considerably. A headline that first read, “Why Hewlett-Packard is hiring dancers” now reads “Dance troupe markets creativity to cube-dwellers,” and is accompanied by a lengthy correction note. I asked CNNMoney tech editor Stacy Cowley for a comment, and she basically pointed me to the editor’s note that’s now topping the story.

It reads:

“An earlier version of this story mischaracterized the relationship between Hewlett-Packard and the Trey McIntyre Project. The dance troupe has performed at HP’s Boise office several times as part of a company event showcasing the area’s artistic organizations and charities, but HP has not hired or paid TMP for its creative services. The text of this article has been updated and corrected. CNNMoney regrets the error.”

I also reached out to Cheryl Strauss Einhorn, the writer of the piece, and haven’t yet heard back.

Here’s the full denial statement from HP spokesman Henry Gomez:

On Tuesday morning, I woke up to a CNN Money story entitled “Why Hewlett-Packard is hiring dancers.” Needless to say, I was intrigued and read on. According to the story, HP had hired a Boise-based dance troupe to provide creative services in an effort to help turn the company around.

The dancers danced (often unannounced) and our Boise employees somehow got new ideas to take to market. The dancing cost $20,000 per half-day. “Had we lost our minds?,” I thought to myself. No, we hadn’t, because as it turns out, the story wasn’t true.

After a number of conversations with individuals at HP and the Trey McIntyre Project (TMP), the nonprofit arts organization referenced in the piece, it became clear that the story was a fabrication.

Aside from inviting TMP to participate, along with other nonprofits, in HP’s annual charitable giving day in Boise the past two years, TMP has no relationship with HP. HP has never hired or paid TMP for their services. They don’t help us with our business and we don’t show them how to dance.

I reached out to the editor responsible for the story, who was very responsive. CNNMoney apologized for the error and issued a correction, which you can read here. While we’re grateful for CNNMoney’s quick response, we question how they allowed such sloppy journalism to see the light of day.

With corporate reputations at stake, CNNMoney has to do a better job.

So for all the employees, friends and journalists who have contacted me in the past two days questioning HP’s sanity, let me repeat, our turnaround does not include dancing, just the hard work of a lot of smart HP employees. The dancing will come later.

Sales were up 6 percent to $5.39 billion, about $30 million below the consensus of $5.42 billion. Earnings per share were 39 cents, a penny off the expected 40 cents.

Never fear, though. EMC says it will still meet its guidance for the fiscal year. It still expects to earn $1.85 a share on sales of $23.5 billion. In the meantime, it will buy back $1 billion worth of stock this year.

EMC shares fell by 2 percent in pre-market trading.

Meanwhile, VMware, the cloud computing software company in which EMC is a majority shareholder, is getting whacked this morning on disappointing outlook. It reported earnings yesterday. VMware said it now expects sales in the range of $1.21 billion to $1.24 billion, below the consensus view of $1.25 billion. VMware shares are falling in pre-market trading. As of 8:45 am ET, the price was $71.51, down $4.19 or 5.5 percent.

You can’t say you weren’t warned. IBM’s first earnings miss in eight years certainly had all the appearances of a big red flag about the IT industry generally, and hardware sales specifically. Now we have to see whether or not Big Blue turns out to be an accurate read-through for NetApp and Hewlett-Packard.

Asa Mathat / AllThingsD.com

It’s been a long, hectic week for news — so it’s understandable if you’ve missed a couple stories on the technology side of things. Here’s a quick weekend roundup of the news that powered AllThingsD this week:

1. In an essay in AllThingsD Voices, Jan Chipchase writes that Google Glass is the company’s “unintentional public service announcement on the future of privacy … it threatens surreptitious, unexpected or continuous recording from the perspective of the human-eye/ear view.”
2. At D: Dive Into Mobile, WhatsApp CEO Jan Koum announced that his messaging app is now bigger than Twitter, which officially claims 200 million monthly active users.
3. Also announced at our mobile conference were Facebook’s updates to its iPhone and iPad apps to incorporate the “Chat Heads” from Facebook Home. As of Wednesday, those changes have started rolling out to users.
4. In an interview with Arik Hesseldahl, Workday co-CEO and Greylock Partner Aneel Bhusri said, “it’s the most disruptive time in 25 years” for enterprise, and that landing HP as a customer at Workday “gives people more comfort that the cloud is real.”
5. Peter Zatko, a computer hacking expert better known as Mudge, is leaving his post at DARPA, where he was tasked with helping government agencies fend off cyber attacks. Mudge’s next stop? Google.
6. If the netbook wasn’t dead already, it will be soon. New data from research house IHS iSuppli say shipments of the mini-computers will fall to zero by 2015.
7. Maybe you’ve heard of this small company called Microsoft? Windows Phone head Terry Myerson is casting his division as an underdog and going on the offensive against Google: “[there is] clearly mutiny in the Starship Android,” he said.
8. Facebook would love to put its new Home overlay on Apple’s iPhone and iPad. Apple almost certainly doesn’t want it there. In this interview, Kara Swisher asked Facebook CTO Mike Schroepfer and mobile head Cory Ondrejka to explain the two companies’ complicated relationship.
9. If you haven’t heard of Chinese smartphone company Xiaomi yet, you will soon. With 7.19 million handsets sold in 2012, Xiaomi president Bin Lin said the company expects to sell twice as many this year.
10. And finally, one of readers’ favorite quotes of the week came from AllThingsD’s own Walt Mossberg. He kicked off Dive Into Mobile by asking Mozilla CEO Gary Kovacs about Firefox’s mobile operating system: “So … what the f**k?”

To stay on top of the latest, you should follow AllThingsD on Twitter and Facebook, and subscribe to our daily email newsletter.

That’s the conclusion of Chris Whitmore, an analyst with Deutsche Bank Securities, in the wake of yesterday’s earnings report. “IBM hasn’t missed consensus earnings expectations for eight years which raises the specter of increased macro risk and substantially weaker IT hardware spending,” he wrote in a note to clients today.

IBM is better than most at managing sales that turn south in one part of its business, but still able to make its numbers, he writes. That it wasn’t able to do so this quarter “raises a red flag” for other tech companies, especially those that sell a lot of hardware, including Hewlett-Packard, Dell, NetApp and EMC. “The IBM miss is a decidedly negative read through for the entire IT hardware segment and we are incrementally more cautious on the sector,” Whitmore wrote.

Expect a lot of attention on IT spending trends in the coming weeks, as other large IT companies get ready to report their results. The next big indicator will be when EMC reports quarterly results next week. HP, Dell and NetApp all report results in mid-May.

The partnership with HP is noteworthy because this is the first time the Leap motion controller will be integrated into computers. The San Francisco-based startup already has plans to sell the Leap as a standalone device for $80. In January, Leap Motion also announced a deal to bundle its sensor with some Asus notebooks and PCs.

“When we first introduced the product, we knew the peripheral was great, because you could take your existing Mac or PC and transform it into a gesture-based machine,” said Michael Zagorsek, vice president of marketing at Leap Motion, in an interview with AllThingsD. “But we felt the future of motion control was being in as many devices as possible, and this partnership with HP is a step in that direction.”

The deal has the potential to be beneficial to both parties. As the world’s market leader in the PC sector, HP can get Leap in front of people at a larger scale. Meanwhile, Leap’s technology can help HP differentiate itself from its competitors. In fact, Zagorsek said that HP first approached them about bringing Leap to its products.

The companies did not share details about specific devices or release dates at this time, but did say that select HP products bundled with the Leap motion controller will start shipping this summer. Then they will launch laptops and PCs embedded with the technology. All Leap-enabled HP devices will also come preloaded with Airspace, Leap Motion’s application store.

As for what’s next, Zagorsek said the company really wants to concentrate on the PC and laptop market for now and is talking with other computer manufacturers, but mobile devices are definitely part of the strategy.

“Obviously, the world is going mobile, so smartphones and tablets are on our road map,” he said. “We want to make sure we’re in as many places as makes sense.”

Intel shares have traded lower since last Thursday, when the market research firms IDC and Gartner said they had tracked one of the largest year-on-year declines in sales of personal computers since records have been kept. Intel is the largest supplier of microprocessors to PC manufacturers like Hewlett-Packard, Dell and Apple, and it’s hard to see how much good news it can possibly bring to the table today.

Analysts are expecting Intel to report a profit of 41 cents per share on sales of $12.6 billion, and missing either would be seen as more or less proving that the PC market is in a state of permanent decline. So would a weak outlook for the current quarter, for which analysts currently expect earnings of 40 cents on $12.9 billion in sales.

There are other aspects to Intel’s business. It has a healthy data center business selling chips for use in servers, but out of more than $53 billion in sales last year, $34 billion, or more than 61 percent, was in its “client,” or PC, unit, while the data center group accounted for about $10.7 billion.

In the past, Intel executives have quarreled with the analyst firms, and said it was seeing more promising conditions in emerging markets. Indeed, in prior years there has been a disconnect between the dour pronouncements of Gartner and IDC and the peppier market conditions that Intel would later describe in its financial results in places like Brazil, Indonesia and Russia. In more recent quarters, the differences between their views have narrowed.

Aside from PCs, Intel has some new ideas that it hopes will kick its data center business into a higher gear. And it certainly has higher hopes about selling more chips for use in phones and tablets, but as yet they’re only hopes. It also plans to launch a TV product later this year.

Aside from the numbers, expect some questions — and maybe even some answers, but probably nothing conclusive yet — about the search for a replacement for CEO Paul Otellini. The smart money says the choice will be an internal one (here’s a rundown on the contenders), though there’s a slim chance that Intel’s board might be in the mood to surprise everyone and name an outsider. But don’t bet any money you can’t afford to lose on that.

Here’s a quick rundown: Hewlett-Packard fell more than 6 percent to $20.88. Dell fell more than 1 percent to $14.04. Apple fell slightly to $434.33. Intel fell 2 percent to $21.83. Advanced Micro Devices fell 3.5 percent to $2.52. Microsoft fell almost 4.5 percent to $28.93. Hard drive manufacturer Seagate fell 3 percent to $36.53. Western Digital fell 2.5 percent to $17.53. All told, they fell by an average of about 2.85 percent.

It was that kind of day, and the financial analysts who track the stocks of the PC makers had to jump in with their own assessments.

“We ultimately don’t believe that tablets are ‘replacing’ PCs (very few people we have met have actually retired their PC because of a tablet),” analyst Toni Sacconaghi of Bernstein wrote in a note to clients today, “but they are contributing to PCs being used less — which, in turn, is pushing out the replacement cycle for PCs. This is a big deal.”

He also said that HP in particular, which according to IDC’s reckoning saw a decline in PC sales of more than 23 percent year on year in the first quarter, may miss sales estimates by more than $700 million as a result. “A key question is whether the contraction in volume (potentially $1 billion in revenue) will have a material impact on PC margins,” he wrote. “We suspect that some of HP’s share loss was the result of increased pricing discipline and a focus on margins in the quarter.”

Shaw Wu, analyst with Sterne Agee, placed at least some of the blame for the market’s poor performance at Microsoft’s door. “We frankly believe Microsoft’s strategy of forcing user interface changes that nobody wants has proven to be a disaster,” he wrote in a note issued today. “Not to mention the customer confusion with too many choices with multiple form factors.” He now expects the PC market to contract in 2013 by 5 percent, down further from his earlier 2 percent guidance.

Yesterday’s reports from the market research firms IDC and Gartner showed conclusively what pretty much anyone paying attention had already suspected — that the bottom has finally fallen out of the PC business. During the first quarter of 2013, the combined shipments showed their worst year-on-year decline ever.

Reversing that trend is probably not an option, which means that a fundamentally new chapter in the history of the personal computer industry is unequivocally here. Shareholders in those companies will start making value judgments accordingly. That was in evidence in the premarket trading this morning.

With a few minutes to go before the opening of markets in New York, shares of market leader Hewlett-Packard were down by nearly 6 percent. Dell, still the subject of an ongoing fight over its proposed $24.4 billion plan to go private in a leveraged buyout transaction, was down only slightly.

Chipmaker Intel was down nearly 3 percent. Advanced Micro Devices, Intel’s one remaining rival, was down 2.7 percent. Microsoft, the primary supplier of operating system software to the world’s PCs, was down 3.5 percent.

Apple, the maker of the iPad, which arguably has disrupted the PC industry, but is also North America’s third-largest supplier of PCs, was down by $2, or less than half of a percentage point.

But the only thing any of the assembled journalists she’s had contact with have wanted to discuss is Autonomy, the British software firm that HP acquired in 2011 and on which it blamed the majority of an $8.8 billion write-down.

The magnitude of the accounting improprieties, Whitman said in interviews with The Guardian and The Telegraph, were such that HP had to report its findings to regulators on both sides on the Atlantic. She also ruled out any notion that HP is interested in selling off Autonomy — such rumors are apparently still in the air in the U.K. — calling it “critical to our strategy.”

Here’s Whitman in an interview she did with the BBC, which starts with her being asked whether it was “wise” for HP to attack Lynch and the rest of Autonomy’s former management team.

Worldwide PC shipments came in at 76.3 million units in the first quarter of the year, amounting to a decline of nearly 14 percent. That’s much worse than the firm’s forecast, which called for a decline of 7.7 percent.

The findings also amount to the fourth consecutive quarter in which sales declined compared to the previous quarter. Neither new versions of Windows from Microsoft nor faster chips from Intel spurred new interest among consumers or businesses. Meanwhile, mini-notebook sales hurt the low end of the market.

Acer experienced the largest sales drop in the period, showing a contraction of shipments by nearly 32 percent year on year. Hewlett-Packard, the world’s market leader, saw its shipments fall by nearly 24 percent. Asus, ranked No. 5, saw shipments fall by more than 19 percent. Dell’s shipments fell by nearly 11 percent. The only vendor that didn’t see a contraction in shipments was China’s Lenovo, where shipments were flat year on year.

Even Apple, which ranks among “other” in IDC’s global rankings, saw declines in its leading market, North America, where sales of Macs dropped by 7.5 percent. At this time, however, it has be said that much of the blame for the damage being done to the PC businesses of all the companies around the world can be laid at Apple’s feet: Sales of the iPad, the world’s leading tablet brand, have a lot to do with the collapse in PC sales. While Apple hasn’t yet released sales results for the first calendar quarter of 2013 — its first fiscal quarter is the fourth quarter on the calendar — when it last reported iPad sales, they had swelled by more than 48 percent to nearly 23 million units from 15 million and change the prior year.

Research firm Gartner also chimed in with its findings: They’re bad, too. It was the first quarter in which shipments fell below 80 million units since 2009. By Gartner’s reckoning, Europe led the declines geographically.

Here’s Gartner’s look at the top five:

HP fell nearly 2 percent to $21.91 in after-hours trading. Dell shares ticked up by a penny after hours. Apple shares fell 40 cents. Intel shares fell 36 cents, or more than 1.6 percent. Microsoft fell by more than 1 percent.

Reporting first-quarter earnings, Hon Hai said revenue fell 19.2 percent from the year prior, to NT$809 billion. That’s well below the NT$895 billion analysts were expecting, and the largest drop in revenue the company has suffered since 2000.

The reason for the precipitous decline? Hon Hai won’t say. But it’s likely to have something to do with Apple. Between 60 percent and 70 percent of Hon Hai’s revenue is believed to stem from the company’s partnership with Apple. So when it posts ugly earnings like these, the quick and easy explanation for them is a slowing in demand for the iPhones and iPads it manufactures. As KGI Securities analyst Ming-chi Kuo told Reuters today, “This shows that Hon Hai’s revenue depends too much on Apple, and iPhone orders corrected more than expected.”

That may be true. But it’s important to remember that Hon Hai’s customer list stretches well beyond Apple, and boasts a number of big names, Hewlett-Packard, Dell, Nokia and Nintendo among them. Given the decline in the PC market, and continuing struggles at Dell, Nintendo and Nokia, it’s entirely possible that there are some other factors at work here, as well.

But that’s just speculation until Apple next reports earnings on April 23.

Hon Hai and Apple both declined comment.

Reserving judgment, two analysts wondered in notes to clients today if even the most optimistic outcome for Moonshot is enough to get HP on track.

Moonshot is a “step in the right direction,” wrote Shaw Wu of Sterne Agee, but he wondered if large Web companies could be persuaded to buy from HP rather than have their own custom servers built for them. “But we are not sure if big customers including Amazon, Google, Facebook, and Twitter would switch from their current model where they procure customized server and storage components from Quanta and Compal.”

And even if successful, Moonshot might not have a big enough impact to nudge HP sales upward, Wu wrote, noting that servers account for roughly 25 percent of sales, versus PCs and printers, both in decline, which combined account for about half. “We believe the company’s turnaround remains tough as it remains to be seen whether its enterprise efforts are enough to offset continued challenges in its PC, printer, and services businesses,” he wrote.

It’s also going to take a while for revenue from Moonshot sales to start showing up in HP’s results, says Brian Marshall of ISI. “While we do not anticipate meaningful revenue from Moonshot in the next few quarters, we see it as a positive step towards maintaining HPQ’s number one share position in servers longer-term.”

Not all voices were so reserved. Patrick Moorhead, an analyst with Moor Insights and Strategy who was on stage with HP execs at the launch today, said the most interesting thing about the Moonshot line is not the fact that it uses less energy or takes up less space than conventional servers, but that it works with all sorts of different chips to attack the computing job at hand. Yes, it supports conventional CPU chips like Intel’s Atom and ARM-based server chips like those from Calxeda, but also GPU chips from Nvidia; digital signal processor chips, like those made by Texas Instruments; and field-programmable gate arrays, the software-defined chips turned out by companies like Altera and Xilinx. That, he says, gives it “the potential to change the game in scale-out data centers.”