It’s not so much about any shifts in sentiment or intention for spending among large companies, it’s just that the dollar is currently strong against other currencies, so U.S.-domiciled companies are in a weaker position when selling to customers in other countries. When accounting for that discrepancy, Gartner says it expects overall growth in spending of 2.5 percent, but on a constant currency basis, the digits would be transposed for a healthier 5.2 percent.

Spending by governments will likely contract, thanks in no small part to the austerity measures being put in place in the euro zone.

The highest rate of growth will be in the telecommunications equipment sector, which will grow by nearly 7 percent, Gartner says. A lot of that is thanks to mobile going to mobile, but also to speeding up networks. See the rest of the segments and their expected rates of growth in the table I screengrabbed from the press release, below:

Earlier this week, Gartner singled out IT spending in emerging economies, which it said will amount to an impressive trillion and change by itself. And last week we got a glance at the sentiment from 100 CIOs at large enterprises, courtesy of J.P. Morgan, indicating that growth is likely to tick upward this year. Up is good.

Now you understand why executives at large tech companies like Intel, IBM, Hewlett-Packard and Cisco Systems get so excited when they talk about places like Brazil, India and elsewhere.

Brazil in particular is just a big part of a surging Latin American region, Gartner says, where spending will total $326 billion; nearly half of that in the professional sector, the other half in consumer.

By adding Mexico, Gartner also adds a fifth member to the four-country BRIC club comprised of Brazil, Russia, India and China. The five countries that make up the BRIMC club will account for 17 percent, or $658 billion, of IT spending this year, the firm says.

The Asia Pacific Region will account for the most among the emerging economies: $496 billion. The Middle East and Africa will account for $244 billion in spending, more than a third of that coming from Saudi Arabia, Turkey and South Africa. Central and Eastern Europe, led by Russia and followed by Poland and the Czech Republic, will account for $158 billion.

Luis Anavitarte, the Gartner analyst who led the study, says that while that seems like an awful lot of healthy spending, buyers are still cautious. He said in a statement that he expects to see aggressive efforts made to go after new consumer buyers in all of these countries, which brings to mind Apple’s aggressive retail push in China. Also, expect to see a lot of spending on cloud computing and mobile technologies at the office.

(Image taken from what someone thinks a trillion-dollar bill might look like. Of course, no such bill exists.)

The reorganization appears to be bigger than we reported. There are a few other things, aside from the combination of the PC-making Personal Systems Group and the printer-making Imaging and Printing Group. One of them is a biggie: If I’m reading this right, then the $22 billion Enterprise Storage and Networking Group appears to have been renamed the HP Enterprise Group, and it appears that the $36 billion Services Group just got combined under Dave Donatelli. That is about as equally important a strategic shift as the other combination.

Update: Not quite so big, after all: HP just called to clarify that only Technology Services is being added to the Enterprise Group, not the Enterprise Services Group run by John Visentin. Sorry for that bit of confusion.

In another move, Global Sales will report to Donatelli, and will be combined into the Enterprise Group. And it looks like Jan Zadak, who had been on the rise since being promoted under Léo Apotheker last year to head Enterprise Sales, is going to get a “new role.”

So now we know what CEO Meg Whitman meant when she said she wanted to streamline and simplify HP’s operations. Operationally, she has created what appears to be one really huge organization in PSG ($65 billion in 2011 and flatlining) and to increase the size of the newly created Enterprise Group a bit by adding to it Technology Services and Global Sales. It’s hard to determine what the combined size of the organization is by revenue, because HP doesn’t break out sales for Technology Services.

Software appears to have been left alone in this shakeup, for now. That group is run by Bill Veghte, who was recently promoted to chief strategy officer, while another software operation, the Information Management Group, which combines Autonomy, the British software firm for which HP paid $12 billion last year and Vertica. It is run by Mike Lynch, the former Autonomy CEO. British software firm for which HP paid $12 billion last year.

Marketing functions have been unified under Marty Homlish, while communications have been unified under Henry Gomez.

Here’s the press release:

HP Announces Organizational Realignment

PALO ALTO, CA — (Marketwire -03/21/12) — HP (NYSE: HPQ – News) today announced an organizational realignment to improve performance and drive profitable growth across the entire HP portfolio.

As part of this realignment, HP’s Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) are joining forces to create the Printing and Personal Systems Group. The combined entity will be led by Todd Bradley, who has served as the executive vice president of PSG since 2005.

Vyomesh Joshi, executive vice president of IPG, is retiring after a highly accomplished 31-year career at HP. Under Joshi’s leadership, IPG has grown revenue from $19 billion to $26 billion, and doubled its operating profit to approximately $4 billion.

“VJ embodies the spirit of HP and his impact on the company has been tremendous,” said Meg Whitman, president and chief executive officer, HP. “Under his leadership, IPG accelerated innovation and pioneered solutions that transformed the printing market. We wish him the very best as he embarks on a new chapter in his life.”

Combining these two entities will rationalize HP’s go-to-market strategy, branding, supply chain and customer support worldwide. This will lead to a better customer experience and drive innovation across personal computing and printing. This realignment is expected to provide opportunities for cost savings and accelerate HP’s ability to pursue profitable growth and reinvest in the business.

“This combination will bring together two businesses where HP has established global leadership,” said Whitman. “By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders.”

In addition to combining PSG and IPG, HP also is taking steps to unify and streamline certain key business functions.

The Global Accounts Sales organization will join the newly named HP Enterprise Group. This group will be led by David Donatelli and includes Enterprise Servers, Storage, Networking and Technology Services.

The new structure is expected to speed decision making, increase productivity and improve efficiency, while providing a simplified customer experience. A new role for Jan Zadak, executive vice president for Global Sales, will be announced at a later date. Zadak will work with Donatelli to ensure an orderly transition.

HP also announced that it will unify its Marketing functions across business units under Marty Homlish, executive vice president and chief marketing officer, HP. This will allow for even more effective brand-building and marketing activities, and will create efficiencies across the business units.

HP’s Communications employees worldwide also will be similarly unified under Henry Gomez, executive vice president and chief communications officer, HP. Together these two moves will create a more powerful voice to demonstrate the power of “One HP.”

Finally, HP is moving the Global Real Estate function from Finance into Global Technology and Business Processes to address real estate consolidation and improve the workplace experience for HP employees.

“Ensuring we have the right organizational structure in place is a critical first step in driving improved execution, and increasing effectiveness and efficiency,” added Whitman. “The result will be a faster, more streamlined, performance-driven HP that is customer focused and poised to capitalize on rapidly shifting industry trends.”

And the highlight of that letter was an update on Big Blue’s progress toward meeting its growth targets for the year 2015. IBM has long promised to add $20 in per-share earnings and $20 billion in incremental revenue growth by that year. The crux of Rometty’s letter: “We’re on it.”

“The next decade holds enormous promise for IBM, most importantly because of what it holds for business and society at large. We are uniquely positioned to deliver the benefits of a vast new natural resource — a gusher of data from both man-made and natural systems that can now be tapped to help businesses and institutions succeed in an increasingly complex and dynamic global economy.”

So how will it get there? By doing more of what it’s been doing the last several years. In broad brushstrokes, that means pursuing lines of business that have a lot of value — and which carry a higher margin — and focusing less on hardware. Generally speaking, that has meant a big shift into services that bear a long-term revenue stream with them.

But it also means a shift to software. One key piece of the strategy has IBM generating about half of its segment profits from software by 2015. As of 2011, it was already at 44 percent.

It also means going global in a big way and reaching into smaller markets that are breaking out. About 22 percent of IBM’s revenue came from these so-called “growth markets” in 2011, and the plan is to push that to 30 percent by 2015. And it’s not coming from the BRIC countries you always hear about (Brazil, Russia, India, China) but others in Africa and Asia: Some 60 percent of revenue from growth countries comes from non-BRIC countries.

There’s a lot more of these interesting facts from IBM’s annual report in an infographic here.

One thing Judge James Kleinberg did was dismiss a fraud claim by Oracle that said HP had been all sneaky when it concluded a settlement with Oracle that included an agreement to continue building software for systems using the Itanium chip. The settlement was struck only a few weeks before HP hired Léo Apotheker as its CEO and Ray Lane as its chairman.

But that’s not the important part of what Judge Kleinberg did. The most important aspect of yesterday’s action in Hewlett-Packard v. Oracle was the release of the unredacted version of Oracle’s cross-complaint. And it’s a juicy read.

I’ve posted the redacted version before. Now you can read all the bits that were blacked out.

What you’ll find is a lot of information that goes to the core of Oracle’s argument that HP has a lot to lose if the Itanium chip goes end of life, which is exactly what Oracle has said Intel plans to do. As the only major server vendor who sells boxes running Itanium chips, HP makes a lot of money — billions of dollars, according to a newly unredacted statement in the filing — on service-and-support contracts with its Itanium customers. As one HP executive is quoted on page four of the filing, without Itanium, HP would be “strategically screwed.”

Intel, on the other hand, was more or less ready to let the chip die. Having spent billions, dating back to 1989, to develop the Itanium chip, which outside of HP never saw any market success, Intel had to be convinced to keep building them. To do that, HP, the filing reads, paid Intel $440 million to keep Itanium chips in production for a few more generations, through 2014. The deal didn’t even cover the cost of the chips, as HP had to pay for them, as well, the filing reads. Oracle calls the arrangement a “pure pay-off to induce Intel to keep churning out processors that it really wanted to kill.”

And while there’s nothing specifically wrong with the arrangement by itself, Oracle’s point is that HP was misleading the marketplace about the true status of the keystone product in its Business Critical Service business. That unit, in no small part because of the uncertainty wrought by this lawsuit, saw its sales fall by 23 percent in HP’s most recent quarter.

Having won the release of the unredacted complaint, Oracle claimed something of a victory in a statement:

“Oracle is delighted that the Superior Court of the State of California, Santa Clara County, has rejected HP’s attempt to hide the truth about Itanium’s certain end of life from its customers, partners and own employees. We look forward to seeing all of the facts made public that demonstrate how HP has known for years that Itanium is end of life.”

It all sounds very reasonable, until you take into account the fact that Oracle acquired Sun Microsystems in 2010 and is now a big server vendor that competes with HP, and would by no real stretch of argument benefit from an exodus of HP’s Itanium customers toward other vendors. HP called the decision by Oracle to cease support for Itanium part of a “calculated business strategy” to mess up HP’s Itanium business and capture those customers. Yet the evidence so far suggests that the one benefiting from this fight is actually IBM.

HP claimed victory of its own, in a statement:

“HP is pleased that the Superior Court of the State of California, Santa Clara County, has rejected Oracle’s attempt to use a fraud claim to undo its contract with HP. We look forward to seeing the facts made public that demonstrate how Oracle’s March 2011 announcement to no longer develop software for Itanium servers was part of a calculated business strategy to drive hardware sales from Itanium to inferior Sun servers. This further demonstrates the fact that Oracle breached its contractual commitment to HP and ignored its repeated promises of support to our shared customers.”

HP has portrayed itself as the defender of the interests of Itanium customers, under attack by Oracle. As HP puts it in its statement, Oracle tried to induce customers running Oracle software on HP Itanium systems into replacing that hardware by limiting support and withholding software patches and bug fixes. “Customers were left without options to address bugs and other defects in their Oracle software,” HP says.

For HP, this is all a simple argument over whether or not Oracle can be held to the contract they agreed to in 2010.

The agreement stems from the circumstances of former HP CEO Mark Hurd’s resignation, and his subsequent hiring by Oracle as its president. HP sued Hurd and Oracle, and soon they settled. HP says that a clause in that settlement included a provision that Oracle would continue to port its database software to HP servers running the Itanium chip. Oracle has argued that this clause is not part of the final agreement. The settlement document itself remains confidential, but its details will likely emerge in the trial. Expect lots of arguing over different versions of the agreement.

I have embedded two documents below, for your reading pleasure. The first is Oracle’s unredacted cross-complaint, with all the blacked-out bits from the previous version now fully revealed for the world to see. Below that is a Case Management Conference Statement filed by HP lawyers, also unredacted, where it seeks to expose Oracle as making cold-blooded moves that would appear to be attempts to spur Oracle’s own software customers to abandon HP hardware. It’s not quite as juicy as Oracle’s document, but it has its moments, too. Enjoy them both:

HP v Oracle – Amended Cross Complaint

0077a 2011121 Hp Cmc Stmnt Unredacted

Deutsche Bank analyst Chris Whitmore expects some difficulties for Big Blue stemming mainly from the company’s exposure to the troubled economies of the euro zone and related currency weaknesses there. He expects the company to report sales of $29.8 billion and per-share earnings of $4.62, with his sales forecast slightly more optimistic than that of the consensus of Wall Street analysts.

Even so, he expects the strength of the U.S. dollar relative to the euro in recent months will create a headwind effect worth about 2 percentage points compared to IBM’s prior forecast in October. “Although the stronger dollar is likely to impact reported revenue, IBM remains one of the most defensive names in our universe due to its high exposure to recurring profit streams, past backlog growth and wide geographic and business diversification,” he wrote in a note to clients yesterday.

Hardware sales should be in line with forecasts as IBM has continued to gain market share away from Hewlett-Packard and Oracle. Services should continue to be a sign of IBM’s strength as its backlog of prior contracts should continue to deliver a stable stream of revenue.

One problem may come from service bookings. Whitmore thinks the consensus estimates on this closely watched number are, at $21.5 billion, a little high and thus could disappoint. IBM announced only five deals in the fourth quarter compared to seven in the same quarter of 2010. And though information about the size of the deals was limited generally, two of them combined to amount to about $740 million. “IBM’s services bookings figure is always a wildcard and the lack of many announced deals clouds visibility,” Whitmore wrote. He rates IBM a buy with a price target of $210.

The earnings report will also be the first with Ginni Rometty as IBM’s new CEO. Having already had a busy first few days on the job, it will be interesting to see if she uses the occasion of an earnings conference call to announce anything new, though that’s unlikely.

First, Acer introduced what it is touting as “the world’s thinnest ultrabook” (it will be interesting to see if Acer can still lay claim to that title by week’s end): The Aspire S5, which measures just 15mm at its thickest point. It weighs less than three pounds and comes with a 13.3-inch LCD display screen. It also comes with an interesting “MagicFlip” port panel that’s hidden below the hinge of the laptop. Users can open the hinge to reveal a panel of ports, including HDMI, USB 3.0 and a 20 gigabyte Thunderbolt port.

The Acer Aspire S5 Ultrabook

The Aspire S5 laptop has an Intel Core processor, a solid state drive, extended battery life and a chiclet keyboard. It’s expected to ship in the second quarter of 2012; the expected price is still TBD.

With its Aspire Timeline Ultra laptops, Acer says it is expanding on the Ultrabook it rolled out in September. The Timeline Ultra is available in 14-inch and 15-inch models; the laptops are 20mm thin, boast eight hours of battery life, have solid state and hard disk drive options, as well as HDMI and USB 3.0 ports. They feature an Intel Core processor. So again, not totally different from other Ultrabooks we’ve seen and are expecting to see more of. The Timeline Ultra does, however, have a DVD-Super Multi optical drive, which some Ultrabooks do not have, depending on their thinness and innards. The Aspire Timeline Ultra is expected to ship this quarter.

But Acer’s cloud service offerings looked a lot like a “me-too” to what Apple showed off at WWDC last June. Due to a technical glitch during the press event — and the greatest ironies of tech conferences, aside from dependably terrible cellular and Wi-Fi service, are the technical glitches — we weren’t able to get a good look at Acer’s cloud media service for syncing music and other entertainment files.

Acer’s PicStream (demonstrated via a slide that looked like Apple’s iCloud slide), promises to share photos seamlessly from smartphones to Windows-based PCs and other devices; AcerCloud Docs is designed for syncing and sharing personal and professional documents via the cloud (although it seemed Acer was mainly targeting professionals with this service). Acer stressed that these services will support Windows-based and Android devices.

Lastly, in an odd but not uncommon press conference move, Acer’s Campbell Kan quickly showed off one more tablet and offered just two bits of information about it — it has a quad-core processor and a 1080p display — before concluding the event. Last week, my colleague Ina Fried wrote about Acer’s efforts to remain relevant in the tablet market by introducing a budget-priced, 10-inch, Android-based tablet, the Acer Iconia A200.

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The new forecast calls for companies and governments to spend a combined $3.8 trillion on information technology, which would amount to growth of 3.7 percent from 2011. The previous forecast had called for growth of 4.6 percent.

For perspective, the difference on a dollar basis is about $100 billion, which is certainly real money, but when you consider the various puts and takes affecting the projected spend, it makes a certain amount of sense.

Gartner says that all four of the major technology sectors it tracks — computing hardware, enterprise software, IT services, and telecom equipment and services — will see their growth rates slow this year.

You can probably guess why: The uncertain global economy, the euro zone sovereign debt crisis and the disruptions on the hardware supply chain from last year’s flooding in Thailand on hard-drive production have all teamed up to perform a triple whammy on the tech sector. The Thailand problem will probably last until well into 2013, Gartner’s Richard Gordon says in a statement, echoing what Seagate CEO Steve Luczo told AllThingsD in an interview in November.

Telecom equipment spending will probably suffer the least, Gartner says. Sales in that sector will grow by nearly 7 percent to $475 billion, followed by the enterprise software market, which will grow by 6.4 percent to $285 billion. The chart at the right, which I screengrabbed from Gartner’s handout, breaks down the revised outlook by each sector versus what the previous growth outlook had been.

Gartner also trimmed its average annual growth projection for IT spending through 2015. It now expects spending to grow by about 5 percent on average, down only slightly from 5.4 percent, but in the wider scope of a few trillion dollars, a fractional change still amounts to hundreds of billions of dollars.

According to sources close to the situation, Apple is planning an important — but not large-scale — event to be held in New York at the end of this month that will focus on a media-related announcement.

Per the usual caveat, the tech giant is well known for moving around their public show-and-tells, so this could certainly change at any moment.

But, for sure, several sources underscored that the event is not related to an upcoming version of the iPad 3, the next iteration of the popular tablet device that many expect to be available in 2012.

Also unlikely, the rollout of Apple’s large-scale rethinking of the interactive television initiative that it has been working on. While the company is expected to launch a new Apple TV product later in 2012, such an event would almost certainly be held in the heart of the industry in Hollywood or at least in Silicon Valley.

That leaves some kind of advertising or even publishing announcement, which might be the case, since Apple SVP of Internet Software and Services Eddy Cue is reportedly involved.

Cue is in charge of a large swath of Apple’s media units, including the iTunes Store, App Store, iBookstore, as well as iAd and its iCloud services.

It’s well known in the ad industry that Apple has been searching for a new head of its mobile advertising unit, since Andy Miller left last summer.

But such an appointment has not been made as yet, said sources.

The last time Cue was in New York for an event, by the way, was nearly a year ago, when Apple helped launch News Corp.’s online magazine, The Daily.

And Apple also recently opened a splashy new retail store in Manhattan’s Grand Central Terminal, and has been refurbishing its flagship glass cube on Fifth Avenue, too.

The holiday-having Apple PR team declined comment, but wished me a “happy, happy new year.”

When you consider the fact that Lexmark is a printer company — and not even an especially large one by comparison to others in the business — you might intuitively conclude that it’s a company on the defensive.

“People don’t print anymore,” goes the refrain of conventional wisdom, “not even at the office.” It’s easier and more efficient now, when you need to refer to a digital document and have it close at hand, to send it to a tablet like an iPad, or even to a smartphone.

And yet, Lexmark is anything but on the defensive. It has been expanding in recent years, primarily by acquisition. In October, it spent $50 million to acquire Pallas Athena, a Dutch software firm specializing in managing and automating business processes — the flow of information through a company. Lexmark combined Pallas Athena with its previous acquisition, Perceptive Software, for which it paid $280 million in 2010; Kansas-based Perceptive specializes in managing unstructured data. Lexmark CEO Paul Rooke says that the two companies combined give Lexmark a position that is unique among companies in the printer business: The ability to help a customer manage and access information in whatever format makes the most sense.

While Lexmark is significantly smaller by revenue than its biggest rival — Hewlett-Packard’s printing division booked $26 billion in fiscal 2011, while Lexmark is on track to report about $4.2 billion in revenue, according to the consensus view of analysts — it is still able to win business away from its larger rivals, and keep those customers. I asked Rooke about this in a recent conversation:

AllThingsD: Paul, the conventional wisdom has held for a long time that printing was a dying business, and that paper was going to go away because everything would be digital. I think that’s been the general criticism of Lexmark since it first spun out of IBM 20 years ago. What do you think of that?

Paul Rooke: We’ve always seen ourselves not so much as a hardware company. When we started, back in 1991, we were evolving from printers to multifunction printers to fleet management. You can see that in our actions. We also want customers for life. We create industry-specific solutions in a responsible way. It’s not just the blocking and tackling of managing a company’s fleet of printers, but it’s about getting intimate with their business processes and managing the paper and ink and so on. And as we’ve evolved, we’ve become more of a solutions company. We like to say “print less, save more.” When we say that, we’re all about helping with smart devices and managing that fleet. But it also refers to capturing, managing and accessing content within the context of a business process.

Well, let’s talk about that a little. When you say “capturing and managing content and information,” what does that mean?

As we found ourselves managing these multifunction devices that have scanners built into them, we found ourselves capturing content off of paper and into digital infrastructure, and we’re looking to do more of that than we have been. You’ll see us do more interpretation of content and automatically routing documents according to what’s on them. But it doesn’t stop there. We found ourselves scanning documents and putting them somewhere and managing them. Our acquisition of Perceptive Software last year has really strengthened that as a value-add for us. A lot of the content that comes in is this messy unstructured content, and with Perceptive, we’re able to help customers manage this unstructured content and finally access it in the context of their business process. And that’s where our Pallas Athena acquisition comes in. When you put it all together, it puts us in a unique position in the industry. We’re not just a printer maker, but we link into the business processes and provide added value for our customers.

“Unstructured data” is a phrase I hear a lot. What does it mean, specifically, to Lexmark?

It’s anything that doesn’t fit in massive databases that are arranged in traditional rows and columns, like financial information and shipping information. In contrast, you might take something like an admission system at a university. It might have some core intake information that’s structured, like a name and birthdate, but then there’s a lot of other information around it, like transcripts and reference letters, that goes into making a decision. Another example is in hospitals, where you have a doctor or nurse looking into a patient file. All hospitals have information systems that keep track of the basic information on a patient. But then there’s other information — like blood tests and X-rays — that’s unstructured, which the doctor will want to look at in order to make a better-informed decision. As you go around in all industries, there are a lot of examples of this sort of data. It really appears in all business environments.

And yet, the core business is still printers and printing. And for myself, I find myself printing a lot less, sending things I need to refer to to my iPhone or iPad and skipping the printer. Do people like me represent a long-term danger to you, or is that really just an issue of perception?

When you look at information generally, the amount of information and content that’s being generated just continues to grow. The ability to access it in an organized fashion is a key challenge for customers, whether they print it or not. But with that growth in information, even if a smaller percentage is printed, there’s still an opportunity for growth in absolute terms. But having said that, as our strategy has evolved, if a customer chooses to print it or store it, we’re going to be there for them. We’re trying to put the tools and technology in place for whichever way the customer goes. There’s a number of industries — government is one, social services is another — where there are customer-facing industries, where you need to fill out a form or a document that requires a signature; many still prefer paper, because it’s inexpensive and easy. Some choose to do that digitally, some choose paper. And when we talk to customers, they’re asking for help in bridging those two worlds. That’s where we jump in and help.

What is the most important thing that customers are saying to you, in terms of their needs? Is it all cost control, which is top of mind so often these days? Or is it something more?

Cost control is certainly there, as is lower-cost devices. These are certainly propositions that play well with customers who want to reduce the cost of their imaging infrastructure. When we engage customers in the managed-service relationship, they often don’t even know how many printers, copiers, fax machines and scanners they have, until we help them assess it and optimize it and hook their devices into a system that helps them control it all. And our managed print services are helping them keep those costs under control. The other thing we’re hearing about is process improvement. With Perceptive, and now Pallas Athena, we help them understand better what their processes are. We have a lot of technologies that map these processes out — not what you think they are, but what they really are. So many times, when you do process improvement, you spend months in a conference room, drawing out what you think the process is on a white board. We can eliminate that step by plugging in the tools and doing a quick digital assessment of what the process actually is, and map it for you digitally. So if you think your process is made up of steps A, B and C, we can come and show you that there’s also D, E, F and G that you didn’t think of. We’ll show you why they’re there, and where the bottlenecks are, with factual data you can work with. Which is a lot better than speculation.

Where do you think your competitors — and name whomever you want — are vulnerable? Where are you winning business away from competitors?

We turned 20 years old this year. Many thought we wouldn’t survive. I think, while the technologies have certainly evolved, the thing that has differentiated us from our competitors is our depth. We go deep with our customers, and get very intimate with them in their industry and their environment and their processes. That’s why customers buy Lexmark. When we’re up against people like HP or Xerox or others, we’re able to get closer to the customer than they are, and do things in a more customized fashion. I think we’ll be doing more of that as we fill out our technology set.

So what kinds of things should we expect from Lexmark in 2012? Are you done doing acquisitions?

You’ll see us enhance our capabilities. Some people think we’re moving away from printing, and that’s not it at all. But we’re adding to it. In addition to that, we’ll continue to integrate Perceptive and Pallas Athena into a more integrated suite of solutions. That will put us in a unique position. The acquisitions are part of the strategy. When we identify gaps or holes in our offerings, we look to fill them either organically or inorganically with acquisitions. We’ll continue to look at those as part of the strategy. We’re not looking for a big one. The ones we have done have been smaller, but of companies with technologies that have high potential for synergies. But we’re still looking.

Could Google’s Android be Facebook’s new best friend?

It just might be, although it’s unlikely the feeling is mutual.

In making Android open source, Google has given would-be rivals many of the tools they need to offer mobile devices with services that compete directly with those of the search giant.

Once Google releases that version of Android, companies are free to do virtually anything they want with the code. It is this openness that attracted Facebook to Android, even though Google is probably the company’s fiercest rival.

That’s because Facebook, like others, can use Android in ways that compete quite directly with Google, all without paying that company a penny. However, device makers have some tough choices to make when they decide how far they are going to deviate from Google’s proscribed path. Changing the code — known as “forking” — creates both business and technological challenges.

Those that don’t meet certain compatibility and other requirements can’t use Google’s mobile services, for example. In some respects, that’s no big deal, since in many cases Facebook will want to use its services and those of its partners, rather than those from Google. However, it also means that Facebook won’t have access to some things it might want, such as the Android Market for third-party programs.

To the degree Facebook wants other Android apps to run, it will need an alternative, such as Amazon’s App Store, or lesser-known stores such as those offered by companies like Appia and GetJar.

In addition to missing out on Google services, making changes too deeply can mean that apps designed to run on Android won’t work, and that the software will be hard to update once Google comes out with a new version of Android.

For most phone makers, the benefits of following Google’s plan outweigh the opportunity to do deeper customization.

Not everyone is choosing to stick to that path, however. Amazon, for example, uses Android for the Kindle Fire, but has done so in its own way. Others have tweaked Android, too, such as tablet maker Fusion Garage, which has layered its own tiled interface over Android for its recently released Grid 10 tablet.

In the case of the Kindle Fire, some but not all Android apps will run on the tablet device. Amazon has also hidden much of the user interface that is part of the stock Android release, and has put in its own browser, music and video services in place of Google’s.

For Facebook, there is the same kind of opportunity to offer its own services, including messaging.

But customizing Android isn’t necessarily a panacea to make Facebook competitive in the mobile space.

First, social is an important component of the smartphone, but not the only one. Customers also want a phone that can easily access multimedia, download apps and perform other tasks far outside Facebook’s traditional wheelhouse.

As a result, Facebook’s foray into mobile may also mean it needs to either create or partner for many services it doesn’t offer currently, including music and video services.

Still, it is understandable that Facebook might see Android as its most attractive option, even if there are others. Intel has been looking for partners for its mobile Linux efforts, for example, while HP is eager to find a good home for webOS.

However, neither of these come with what Android does — a huge base of consumers and developers already using the operating system.

Related Posts on the Facebook Phone:

1. It’s Finally Real and Its Name Is Buffy
2. Forking Android Offers Both Promise and Pitfalls
3. The “Slayer” That Wasn’t
4. If It Comes, Will It Already Be Too Late?
5. The Facebook Phone: Why Would You Want One?

Full Facebook Phone Coverage »

Earnings per share were $1.17, versus the consensus of $1.13, on sales of $32.3 billion, also slightly ahead of the consensus.

However, the guidance looks weak. HP said it sees fiscal year 2012 earnings coming in at at least $4, well below the consensus of $4.56, and not really even in the “just right” territory that I wrote about this morning.

“We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution,” CEO Meg Whitman said in a statement.

HP shares took a beating today, but so did the rest of the market. HP closed down more than 4 percent at $28.84. The shares are down more than 36 percent since the start of the year.

Here’s the full earnings news release:

PALO ALTO, CA–(Marketwire -11/21/11)- HP

Fiscal 2011 non-GAAP net revenue of $127.4 billion, non-GAAP diluted earnings per share of $4.88 and free cash flow of $9.1 billion grew 1%, 7% and 8%, respectively, over the prior year

Fiscal 2011 GAAP net revenue of $127.2 billion, GAAP diluted earnings per share of $3.32 and cash flow from operations of $12.6 billion

Fourth quarter non-GAAP net revenue of $32.3 billion, non-GAAP diluted earnings per share of $1.17 and free cash flow of $1.2 billion were down 3%, 12% and 43%, respectively, from the prior-year quarter

Fourth quarter GAAP net revenue of $32.1 billion, GAAP diluted earnings per share of $0.12 and cash flow from operations of $2.4 billion

HP today announced financial results for its fourth quarter and full fiscal year ended Oct. 31, 2011.

“HP has a great opportunity to build on our strong hardware, software, and services franchises with leading market positions, customer relationships, and intellectual property,” said Meg Whitman, HP president and chief executive officer. “We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution.”

“While FY11 proved to be a challenging year, we grew non-GAAP EPS 7% and generated $12.6 billion in cash flow from operations,” said Cathie Lesjak, HP executive vice president and chief financial officer. “We’re remaining cautious heading into FY12 but are focused on delivering our earnings outlook and driving shareholder value.”

Earnings highlights

—————— —————————— ————————–
Q4 FY11 Q4 FY10 Y/Y FY11 FY10 Y/Y
—————— —————————— ————————–
GAAP net revenue
($B) $ 32.1 $ 33.3 (3%) $127.2 $126.0 1%
—————— —————————— ————————–
GAAP operating
margin 2.5% 9.9% (7.4 pts) 7.6% 9.1% (1.5 pts)
—————— —————————— ————————–
GAAP net earnings
($B) $ 0.2 $ 2.5 (91%) $ 7.1 $ 8.8 (19%)
—————— —————————— ————————–
GAAP diluted EPS $ 0.12 $ 1.10 (89%) $ 3.32 $ 3.69 (10%)
—————— —————————— ————————–
Non-GAAP net
revenue ($) $ 32.3 $ 33.3 (3%) $127.4 $126.0 1%
—————— —————————— ————————–
Non-GAAP operating
margin 9.7% 12.0% (2.3 pts) 10.8% 11.4% (0.6 pts)
—————— —————————— ————————–
Non-GAAP net
earnings ($B) $ 2.4 $ 3.1 (23%) $ 10.4 $ 10.9 (4%)
—————— —————————— ————————–
Non-GAAP diluted
EPS $ 1.17 $ 1.33 (12%) $ 4.88 $ 4.58 7%
—————— —————————— ————————–

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise specified, all revenue amounts below are calculated on a GAAP basis.

Full year fiscal 2011
GAAP net revenue for the full fiscal year 2011 was $127.2 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. GAAP operating profit was $9.7 billion, and GAAP diluted earnings per share (EPS) was $3.32, down 10% from the prior year.

Non-GAAP net revenue for the full fiscal year 2011 was $127.4 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. Non-GAAP operating profit was $13.8 billion, and non-GAAP diluted EPS was $4.88, up 7% from the prior year.

Fiscal 2011 non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in the fourth quarter in connection with the wind down of HP’s webOS device business, net of fourth quarter webOS device revenue. Non-GAAP earnings and operating profit information excludes after-tax costs of $3.3 billion, or $1.56 per diluted share, related to the wind down of HP’s webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Fourth fiscal quarter 2011
For the quarter, GAAP net revenue of $32.1 billion was down 3% from the prior-year period. Non-GAAP net revenue of $32.3 billion was down 3% from the prior-year period as reported and down 6% when adjusted for the effects of currency.

GAAP diluted EPS was $0.12, down 89% from the prior-year period. Non-GAAP diluted EPS was $1.17, down 12% from the prior-year period.

Fourth quarter non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in connection with the wind down of HP’s webOS device business, net of webOS device revenue for the period. Fourth quarter non-GAAP earnings information excludes after-tax costs of $2.1 billion, or $1.05 per diluted share, related to the wind down of HP’s webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Fourth fiscal quarter 2011 trends and regional performance
In the Americas, fourth quarter GAAP net revenue was $14.5 billion, down 4% year over year and down 5% when adjusted for the effects of currency. Non-GAAP net revenue in the Americas was $14.6 billion, down 3% year over year and down 4% when adjusted for the effects of currency.

Europe, the Middle East and Africa GAAP revenue of $11.7 billion was down 6% year over year and down 10% when adjusted for the effects of currency. GAAP revenue in Asia Pacific was $6.0 billion, representing a 3% increase year over year, and down 4% when adjusted for the effects of currency.

GAAP revenue from outside of the United States in the fourth quarter accounted for 65% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.8 billion, up 9% over the year-ago period, for 12% of total HP revenue.

Revenue in HP’s commercial businesses declined 2% year over year. Revenue in HP’s consumer businesses, within PSG and IPG, was collectively down 9% year over year.

Fourth fiscal quarter 2011 business group results

Services revenue of $9.3 billion grew 2% year over year with a 12.8% operating margin. Technology Services and Application Services revenue grew 3% and 2%, respectively, while IT Outsourcing revenue grew 1% and Business Process Outsourcing revenue declined 2%.

Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 13.0% operating margin. Networking revenue was up 5%, Industry Standard Servers revenue was down 4%, Business Critical Systems revenue was down 23%, and Storage revenue was up 4%.

HP Software revenue grew 28% year over year with a 27.7% operating margin. HP Software revenue was driven by revenue growth in licenses and services of 33% and 36%, respectively.

Personal Systems Group (PSG) revenue declined 2% year over year with a 5.7% operating margin. Commercial client revenue grew 5%, and Consumer client revenue declined 9%. Total units were up 2% with 5% growth in desktop units and 1% growth in notebook units.

Imaging and Printing Group (IPG) revenue declined 10% year over year with a 12.8% operating margin. Commercial revenue was up 4% year over year with commercial printer hardware units up 5%. Consumer printer hardware revenue was down 8% year over year with an 8% decline in units.

Financial Services revenue grew 18% year over year driven by double-digit growth in both lease volume and portfolio assets. The business delivered a 10.3% operating margin.

Asset management
HP generated $2.4 billion in cash flow from operations in the fourth quarter. Inventory ended the quarter at $7.5 billion, with days of inventory up 4 days year over year to 27 days. Accounts receivable of $18.2 billion was up 1 day year over year to 51 days. Accounts payable ended the quarter at $14.8 billion, flat from the prior-year period at 52 days. HP’s dividend payment of $0.12 per share in the fourth quarter resulted in cash usage of $239 million. HP also utilized $500 million of cash during the quarter to repurchase approximately 17 million shares of common stock in the open market. HP exited the quarter with $8.1 billion in gross cash.

Outlook
For the first quarter of fiscal 2012, HP estimates non-GAAP diluted EPS in the range of $0.83 to $0.86, and GAAP diluted EPS in the range of $0.61 to $0.64.

First quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2012 non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

In order to more effectively manage HP as one company and align its guidance policy with its long-term objective of delivering profitable growth, HP will only be providing a quarterly and annual earnings per share outlook. The company believes that earnings per share is a better indicator of successful execution across its various business levers. HP remains committed to high levels of disclosure and transparency, including general commentary on its expectations relating to future revenue and business segment performance, and will continue to provide detailed segment-level financial performance data for completed fiscal periods.

More information on HP’s quarterly 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 Q4 FY11 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2011q4webcast.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.

It will also be the first earnings release since the infamous fiasco of Aug. 18, when HP shocked investors with a truckload of news: The shutdown of the webOS hardware business, the now-concluded review of strategic options for the PC business, the acquisition of the British software firm Autonomy and a lowering of its revenue outlook.

The consensus of Wall Street analysts calls for HP to report sales of $32.1 billion and per-share profits of $1.16. At that level, sales growth would amount to about 3 to 4 percent on a sequential basis. Which, writes analyst Toni Sacconaghi of Bernstein Research in a note to clients on Friday, is substantially slower than the 8 to 14 percent HP usually grows sales in its fourth quarter.

HP consistently beats the consensus number — 25 of the last 26 quarters, by Sacconaghi’s count — so there’s a pretty good chance the company will do it again, despite an aggressive pricing environment for PCs, economic weaknesses in Europe and headwinds from the effect of currencies. When HP issued profit guidance in August for this quarter — the range was $1.12 to $1.16 a share — it implied that operating margins would be down by about 0.3 percent to up by 0.1 percent. This would be, Sacconaghi writes, the worst quarter-on-quarter change in operating margin since HP acquired Compaq in 2002.

Yet the results for the quarter are almost of secondary concern. All eyes will be on guidance that HP gives for 2012. It must be realistic, but not too low; achievable, so not too high. Guidance that Goldilocks could love — just right. HP has been lowering its guidance all year, but that was under prior CEO Léo Apotheker. The right number for EPS guidance in 2012, Sacconaghi says, is at least $4.25 a share, though he’s estimating HP will finish 2012 at $4.80, which is a reduction from his previous estimate of $5.15.

Also, it should set some clear priorities for capital allocation, Sacconaghi writes. HP took a lot of heat for paying $11.7 billion for Autonomy. Whitman has yet to set the table strategically for HP: Does it need more “transformation”? Or is it a mature company with slow predictable growth targets that routinely gives cash back to shareholders in much the same way IBM does? In choosing the latter, Sacconaghi says, HP could grow sales by at least 2.5 percent a year and per-share profits by 9 to 10 percent a year for the next three to five years.

HP can expect to produce free cash flow next year, in the range of $8 billion to $10 billion. If it were to buy back $4 billion worth of stock, it would reduce the share count by about 7 percent, and thus goose its EPS accordingly. One important signal on this front is the addition of activist investor Ralph Whitworth to HP’s board. Whitworth is likely to advocate the return of cash to shareholders and lean against big acquisitions.

Finally, there are lots of challenges in HP’s individual business units, none of them insurmountable. The printer unit is still recovering from the effects of the earthquake in Japan. Certain high-demand models are running short, yet there’s a lot of lower-demand models in inventory. Sacconaghi expects sales in the unit to drop 6 percent. In services, HP has had some problems delivering profit growth. Expect some explanation around that in the commentary today. In the PC business, expect some explanation of the effects HP is seeing from the flooding in Thailand which is causing a worldwide shortage of hard drives. In the Business Critical Server business, which is where HP sells its high-margin Itanium-based servers, the impact from the ongoing brawl with Oracle is making it difficult to close deals, Sacconaghi writes.

Overall, he insists that HP — despite its troubles over the last year — remains an attractive investment for patient investors. It still leads the market segments it participates in, except services, and still has fair room for growth. Sacconaghi rates HP as “outperform,” and expects it to hit a price of $37.

Now that there’s a new boss at HP — one who’s staffing up — I’m adding a new image: A paratrooper. After all, despite the fact that HP’s new CEO Meg Whitman is getting things at HP calmed down, there’s still some more drama to come. Anyone taking a new executive job is — by a stretch of phrase — “parachuting in.” Get it? And the parachute picture won’t apply just to HP, either — it also works for posts about other companies that are working through their own dramas. (Cisco Systems, I’m looking at you!)

Anyhow, the paratrooper image also works when you hear where the new guy comes from: Boeing. HP named John Hinshaw, the former vice president and general manager of Boeing Information Solutions, as its new executive vice president of Global Technology and Business Processes.

Hinshaw — who is, by my count, Whitman’s first senior hire since taking over as CEO last month — is 41, and will oversee HP’s information technology and administrative services. He’ll be in charge of procuring service and making sure all the business processes are running as smoothly and efficiently as they should be. It’s a big job, and as such, Hinshaw will be a member of HP’s executive council and report directly to Whitman.

In his previous position, Hinshaw was responsible for running Boeing’s high-growth businesses, which included delivering IT solutions to the U.S. government. Before that, he was Boeing’s CIO responsible for global IT strategy, operations, process and people. Before that, he was senior vice president and CIO at Verizon Wireless. And before that, he was a consultant at Accenture.

In the same announcement, HP also said that Craig Flower has been promoted to senior vice president and CIO. He’s been with HP since 1984 (so no paratrooper for him), and will report to Hinshaw. He’ll oversee data management, applications, global business intelligence and a bunch of other stuff. He’s held a wide range of IT positions within HP, including its e-business operations, customer and sales groups, and the all-important Personal Systems Group. If there’s a guy who knows what’s what at HP, it seems Flower would be it.

Update: As the commenter below just reminded me, Flower is taking the title held by former CIO Randy Mott, who left in HP’s big summer shakeup.

Now that new HP CEO Meg Whitman has decided to keep the PC business rather than spin it out as her predecessor Léo Apotheker had proposed, HP appears to be heading back, however slowly, toward the kind of stability for which it had long been known.

But can it still perform? Bernstein Research analyst Toni Sacconaghi took the opportunity to examine the company’s business units and finds that, yes, the prospects for growth aren’t unreasonable. The current portfolio of HP’s business, he estimates, is likely to grow its sales organically by a combined 2.5 percent on an annual basis going forward. Add to that additional growth from the planned shifts toward higher-margin IT service, networking and software businesses, and the picture gets brighter, Sacconaghi writes in a note to clients issued yesterday. HP, he argues, should be able to grow its per-share earnings by 9 to 10 percent annually over the next three to five years.

Part of his assumption is that HP uses about $4 billion of its $8-$10 billion in annual free cash flow for share buybacks, which will help goose earnings on a per-share basis by reducing the number of outstanding shares; plus another $3 billion annually for acquisitions, buying companies at reasonable multiples of about five times revenue.

So how does each sector of HP’s business look?

PCs: Sacconaghi reckons that the global market for PCs will grow about 6 percent a year on a unit basis, down from historical averages of about 10 percent, and that it will grow on a revenue basis by about 2 percent a year through 2015. As the biggest supplier of PCs in the world, HP will, at the very least, hold its market share. While PCs are HP’s largest business, accounting for $40 billion in its last fiscal year and about one-third of its overall sales, the unit generates only 13 percent of operating profits. And, yes, while tablets are a threat, Sacconaghi sees no reason that PCs and tablets can’t grow together. The increasing need for an Internet connection everywhere and the increasing amount that consumers are willing to spend on technology, coupled with price declines over time, mean that consumers will be willing to spend more on notebooks and tablets.

Printers: As with PCs, HP is the market leader in printers, and as that market grows its revenue by about 3 percent a year, HP will probably hold on to its share of the market. Tablets may have a long-term impact on printing behavior, but Sacconaghi argues that consumer behavior tends to change slowly. A decade ago, he says, investors worried that email and the paperless office would kill printing. “Despite these ostensible headwinds, HP and Lexmark collectively grew their supplies revenues by 7 percent per year between 2000 and 2010, driving low to mid single digit growth for the printer industry.” HP’s printer division accounted for $25.8 billion in revenues in the last fiscal year, or about 20 percent overall, and because of its 17 percent operating margin, delivered 29 percent of the company’s profits. It’s a classic razor blade business, as HP loses between 20 and 25 percent on the printing hardware, only to make it up on supplies that command a 60 percent margin. The presence of tablets could actually boost printing, and thus increase the sale of those supplies down the road. Overall, the printer business should continue to grow at about 3 percent a year, Sacconaghi says.

Enterprise, servers, storage and networking: Sacconaghi expects HP to grow revenues in the ESSN unit by about 2 percent a year, slightly below the industry growth rate of 3 percent. He bases this on the expectation that HP can grow its networking business, hold its market share in the Intel-based servers, and lose share in its enterprise storage business to players like EMC and NetApp, and also lose share in the Unix storage business because of Oracle’s decision not to support the Itanium chip.

Services: This unit should grow by about 2 percent annually, slower than the market, which is growing at 4 percent. “We believe that outsourcing is a maturing business, and that EDS, which HP purchased in 2008, is and was an underperforming asset,” Sacconaghi writes. “As a result, we forecast HP’s outsourcing revenues to remain flat.” Expect it to grow in line with the enterprise hardware business, and along with the consulting business.

Software: The market research firm IDC expects the end markets for HP’s software to grow by 7 percent a year. If you assume that HP makes more software acquisitions, which Sacconaghi does, then you can reasonably predict its software revenue will grow by 10 percent a year.

So what’s the risk to all this? Leadership. “Ultimately, our projections for HP are predicated on the company choosing a disciplined financial approach to running the company that includes modest revenue growth, small and leverageable acquisitions, a strong operations focus, and high returns of capital to shareholders,” Sacconaghi writes. The last two CEOs who tried to “transform” HP — Carly Fiorina and Léo Apotheker — failed.

HP’s isn’t “broken,” but in fact offers a favorable risk for patient investors, Sacconaghi says. He rates HP shares as an “outperform,” with a price target of $37.

Service offerings, such as managing E-ZPass highway-toll systems and supporting outsourced finance and accounting operations, continue to drive the Norwalk, Conn., company’s growth. Xerox also saw color-printer and supplies sales climb 9 percent, helped by the company working through a pile of orders that had mounted after Japan’s March earthquake and tsunami disrupted its supply chain.

Read the rest of this post on the original site »

The company reported per share earnings of $3.28 on sales of $26.2 billion. Analysts had estimated sales to come in at $26.25 billion and per-share earnings of $3.22.

IBM raised its guidance on its outlook for earnings in the 2011 fiscal year to at least $13.35 from $13.25 previously. The company is working toward a publicly stated goal of delivering $20 per share in earnings by its fiscal year 2015.

IBM shares fell nearly 2 percent ahead of the report and closed at $186.94 during regular trading. The shares fell further in after-hours trading, dropping $8.53, or more than 4 percent, to 182.00 soon after closing. The shares are up nearly 30 percent since the start of the year.

The growth in revenue amounts to 8 percent, or 3 percent after adjusting for currency implications. Operating income grew by $4 billion or 9 percent. IBM’s operating margin was 46.8 percent, up 1.5 points.

Services revenue was up 8 percent, and IBM reported a services backlog of $137 billion, up $2.4 billion. Revenues from the software sales were $5.8 billion, an increase of 13 percent. Hardware sales totaled $4.5 billion for the quarter, up 4 percent. Financing revenues decreased 2 percent in the third quarter to $520 million. Perhaps this is why Big Blue made a big push on financing for small businesses last month.

On the brighter side, IBM did well in growth markets. They accounted for 23 percent of sales and contributed more than half of IBM’s sales growth on a constant currency basis so far this year. Forty of those countries all reported double-digit sales growth in the quarter.

IBM, he says, should meet expectations for the quarter by delivering per-share earnings of $3.31, slightly better than the consensus estimate of $3.21. On top of that, he expects IBM to raise its guidance for earnings on the year to $13.35 per share or higher. Sacconaghi says IBM may earn as much as $13.60 a share this year, depending on how much it ultimately saves from workforce reductions and a lower tax rate. He says that IBM has beat its consensus in each of its last 15 quarters and raised annual earnings guidance in nine of its last 11 quarters.

All good, right? Sure, but how long can IBM keep this sort of thing going? Certainly not forever, especially in a tough global economy. Revenue growth this year will be difficult to compare to last year, Sacconaghi writes, especially in light of a stronger U.S. dollar, a slowing business cycle in hardware upgrades and a slowdown in services growth over the last 18 months. As such, his estimates for revenue growth are below those of the Street consensus: Where the Street expects IBM to report sales of nearly $112 billion in fiscal 2012, Sacconaghi expects $109.3 billion.

“IBM has benefited from a favorable currency environment, which has boosted the company’s headline revenue growth number, which is likely to reverse and pressure IBM’s reported revenues in the first half of 2012 at current spot rates,” he writes. “While we don’t expect this to lead to earnings misses versus the consensus given that IBM hedges, we believe that revenue estimates need to be revised downwards from current levels.”

Gone is the webOS hardware business acquired with Palm last year, though the WebOS software business remains alive and well for now. The business of selling phones and tablets was unceremoniously killed in a move reminiscent of Cisco Systems’s decision to kill its Flip video camera business. At least we know why: As AllThingsD reported exclusively Tuesday night, sales of HP’s TouchPad have been embarrassingly bad, particularly at Best Buy.

Soon to be going — either spun off or sold — is HP’s consumer PC business. Exactly what will happen there is anyone’s guess. Will HP create an independent company or sell it? If it’s to be a sale, the smart money says that Samsung would be a possible buyer, and sources have told AllThingsD that HP was shopping the PC business around Asia earlier this year. But there are several reasons that HP would choose to follow the model of Motorola and spin the unit off into an independent company. As CEO Léo Apotheker said on the conference call, all options are on the table, including a spinoff sale to another company, sale to private equity, or even no transaction at all. The reason for making today’s “strategic options” announcement is that it frees up management and the board of directors to take a deep dive and look at what’s best. My guess: Bet on a spinoff.

My notes from the conference call are below.

2:01 pm: And so we’re waiting for the conference call to start. Lots of soothing music to keep our minds off all the questions reeling in our heads.

Among those questions: What kind of transaction can we expect for Hewlett-Packard’s PC unit? A spinoff or a sale? Will it include the enterprise PC business as well as the consumer PC business?

Was there ever any attempt to sell the webOS assets? What about the webOS and Palm-related portfolio of patents? I bet those are pretty valuable right now. Will HP sell them or keep them?

The call is underway.

Léo will be speaking shortly.

2:05 pm: And here’s Léo.

Today is all about driving shareholder value and addressing the challenges in our business. I’ve been CEO for nine months and made some tough decisions. There are four elements to the path forward.

Consumers are changing the use of the PC, and sales of the TouchPad are not meeting expectations. (Where have I heard that before?)

The plan to separate PSG is to sharpen HP’s focus on cloud and other services. There are tactical issues to consider. We are still facing headwinds, stemming from the Japan earthquake, in the printing business.

There is a clear secular movement in the consumer PC space. The tablet effect is real, and the TouchPad is not gaining momentum in the marketplace.

For our PC business to function properly, it needs to be able to make decisions that are best for itself. We anticipate we will take 12 to 18 months to complete this process.

Additionally, we have been tracking the progress of webOS. We were successful at launching software that was praised. We are exploring options of how best to optimize the webOS assets in the future. The devices aren’t getting traction. Continuing to execute in this market space is no longer in HP’s interest. The webOS hardware business will be shut down by Q4.

Now on to services. The transformation will be a multiquarter journey. We are focused on addressing sales delivery and other challenges.

He’s now announcing John Visentin as the head of Enterprise Services. He’s an IBM veteran and has previously run Enterprise Services. He’s Ann Livermore’s replacement, and thus has big shoes to fill.

Now on to tactical challenges. In business critical services, we think the Itanium platform is the best in the industry. We are fully committed. We are doing everythying we can, including pursuing legal action against Oracle’s “anticompetitive behavior.” (Long story, but you can read several posts I’ve written about this.)

Fourth: Adding more value-added intellectual property. More software. More big data. More cloud.

2:14 pm: A good example is the acquisition of Vertica.

And now he’s talking about the acquisition of Autonomy. Here are the financials: This is a milestone, because there is a very real need to address the explosion of structured and unstructured data.

HP will pay $42.11 per share, though Léo is giving the amounts in British pounds.

2:17 pm: In 2010, Autonomy had gross margins in the high 80 percent range, and operating margins in the 40-plus percent range. Autonomy will continue to operate separately.

As an executive who has spent most of my career in software, it is a world I know well. We believe this transaction will unlock synergies across multiple industry verticals. We are building a strong HP software business.

We are focusing on what needs to be fixed, shut down and considered for separation.

A comment on guidance. I am lowering the Q4 guidance in order to be realistic about where we are. I don’t take this action lightly. I know our investors don’t like being in that position, and neither do I.

I am taking ownership for these actions and investments as we shape the new HP.

Cathie Lesjak, CFO, is now speaking and doing the numbers. “This is the toughest guidance in my career as CFO.”

Company gross margin of 23.3 percent was down 70 basis points year on year. Printing and webOS posted lower gross margins, which were offset by favorable commodity environments.

Generated $3 billion in earnings from operations, down 14 percent sequentially and down from $3.4 billion a year ago.

HP repurchased $4.6 billion of shares.

Segment info: Personal systems, revenue of $9.6 billion, down three percent from prior year.

Commercial client revenue grew nine percent, led by workstations. Consumer down 17 percent. Ouch. Desktops and notebooks equally affected by drop in consumer demand.

Lesjak says webOS ran a loss. Clearly, the sell-through wasn’t what was expected. It quickly became clear that pricing parity wouldn’t generate demand. The price cuts had added incremental cost to our model. We took a five-cent charge to EPS. We would expect a bigger loss in Q4.

To make this a financial success would create more risk without certain returns. We will explore options for strategic value of the software. (Hint hint, webOS software is for sale. Again.)

Now on to the printing business. Three million Web-connected printers sold. Sell-through is slowing in supplies. Supplies business tends to follow the economy. Expect a revenue and margin impact for the next few quarters.

Still more troubles from Japanese currency and the rise in the yen. Expect that to continue, too.

Our services transformation is a four- to six-quarter journey.

Industry standard servers: We expect to show share gains, though we expect growth to slow. HP remains number one in blade services.

Revenue decline in business critical servers is down nine percent because of the legal mess with Oracle.

3PAR sales continue to accelerate. Seems it was worth taking on that bidding war with Dell last year.

Balance sheet: Total gross cash of $13 billion. Looks like the Autonomy deal is going to consume $11 billion of that, if I read the presentation of that deal correctly.

Long-term EPS commitment is now gone. I think Lesjak said it was $7.14 in EPS by 2014. I may have mangled that. Whatever, they’re not going to make it now, anyway.

Q4 EPS expected at 44 to 55 cents a share.

Léo is back. This is about a transformation of HP for a new future. HP is at a critical point in its existence. These changes are fundamental. The changes will transform HP. The transformation starts today.

And here’s the Q&A. Should be interesting.

2:39 pm: Morgan Stanley. Can you talk about which customer segments and geos weakened in July, and which ones will weaken in October?

Léo: A summary of this — we saw our business in Asia grow, and if you look at the other two regions, they declined in constant currency. On a rough basis, consumer PCs declined while commercial increased. We had good performance in ESSN. But public sector, which is 10 percent of business, is being impacted by budget constraints on both sides of the Atlantic.

Lesjak: We had a back end loaded quarter, but it was softer that we expected in July.

Barclays asks about services: Did you cut enough when you bought EDS? Is 12.5 percent margins low enough?

Léo: We are making progress on services. One thing we are focused on is growing the top line. We didn’t do it. We now have a leader for this business. What we are trying to achieve is a much better mix, from the execution standpoint. We can increase our coverage and bench in application and services. We are engaged in a systematic account review, so we are optimizing value.

Lesjak: I said 12.5 percent. We are affected by the weakness in public sector, and also by business critical systems. (There’s the Itanium fight with Oracle rearing its head again. -Ed.)

Citigroup ask about the synergies between printers and enterprise business. How do you feel about keeping printers and enterprise together?

Léo: IPG, the printing unit, is important to HP. It has been leading the disruption of the analog printing market.

IPG has the opportunity to reinforce its strengths. We are driving our document- and content-management solutions. With the acquisition we announced today, we will be able to provide IPG with additional intellectual property.

Sanford Bernstein asks about Autonomy. You are paying a fantastic price. He’s worrying that HP is overpaying for Autonomy at a time when HP’s stock is at a historic low. It’s going to cost you 15 percent of your market cap. Also it’s going to eat into the cash position.

Léo: Let me start by making sure everyone understands what Autonomy represents. It will allow us to lead a large and growing space, enterprise information management. It will help customers manager the explosion of information. It will position HP in a large and growing space. It will provide differentiated IP for services. It will give IPG a base for content management.

Léo: Autonomy has grown its revenue at compound annual growth rate of 55 percent over three years. We think we can extract a lot more out of it by combining it with HP.

Lesjak is speaking about cash. We have repurchased $15.6 billion worth of shares. We would spend to rebuild our balance sheet, and will moderate share buybacks.

2:49 pm: Cross Research on Personal Systems Group: Why not spin it off now? And also on webOS. What about the plan (announced at D) for putting webOS in PCs?

Léo: What the board and management team have been working on is to look at our options, and what the board has decided to do is look at all the options. This will allow us to look at it much more closely. Over time, a decision will crystallize. All I can say now. We will refrain from commenting further. On webOS software business, we are looking at all our strategic options regarding the software. The software has been received very well. We will be looking at all of the options to third parties, to others who need this kind of option. Licensing or other possibilities, to extract value from webOS.

Wow.

Goldman Sachs question: How should we think about strategic actions versus the need for further cost reductions, in light of the view that there’s been an underinvestment in prior years?

Léo: He’s not taking the bait to repeat the “Blame Hurd” message from last quarter.

BMO’s Keith Bachman, whose downgrade caused so much share-value loss yesterday, asks about the growth prospects at Autonomy.

Léo: When you analyze the numbers of Autonomy, they have been executing a shift to software as a service, or cloud services. They are one of the few traditional license-based companies who have executed such a successful transaction. Roughly one-third of revenues are cloud-based. Not going to talk about forward growth rates.

Raymond James: On PC, you’ve talked about strong return on capital in that business. Can you talk about what changed?

Léo: One of the reasons we announced today was so that we can study. We are going to look at all of our options, and also want to make sure everyone understands that all options are possible, including a nontransaction. Which means they may not ultimately sell the PC unit.

2:56 pm: Stifel Nicolaus asks: Operating profitability for two segments: Enterprise seems to be at 13 percent, which is below previous guidance. And the same question to imaging and printer, now 14.7 percent, though having supply-chain problems.

Lesjak: The macro picture has deteriorated since last quarter. We saw softness in Europe and Americas. Also there’s the lower mix of systems in Business Critical Systems. (Another reference to the Oracle fight.)

Another question, though I didn’t catch the firm that asked: Is there scope to cut more costs at HP at the group level?

Léo: How are we performing compared to peers? In fact, we are actually competing rather well. Our market share across the vast majority are stable, or in a few cases we have eked out gains. Are there any specific issues affecting our business in particular? We are facing macro trends. What HP is facing are essentially the following things: We are being challenged on business critical systems. We have an issue in printing, which was impacted by Japan. Overall, we have one issue that we want to tackle, and that’s our productivity in the salesforce. We are going to create a unified platform for the salesforce to go to market. We are now going to have a regular cadence and discipline around managing major accounts in this company.

3:01 pm: UBS question. How much of the $332 million in operating losses is related to webOS? How long is the leash to lower the losses or get to break-even?

Lesjak: We remain at the operating expenses of one to two cents a quarter.

A question from Jeffries about free cash flow. Can you give us an understanding of the cash balance? Also, do we have any bullet payments? Also around Autonomy: If it’s going to be independent, but if you see synergies, how will you integrate it?

Léo: Yes, we will run Autonomy as a separate entity. Of course we will be looking for synergies as quickly as possible. First off, we will give Autonomy access to our channels. We will be working across our softare teams and theirs. IPG is one case. There are other things we can do with ESSN, as you can imagine.

Lesjak: We ended with $13 billion in gross cash. With our lower top-line expectation, and the cash charges related to webOS shutdown, that is putting downward pressure on cash flow. We expect free cash flow for the year of $8 billion.

3:04 pm: Question from Gleacher about storage. What will drive that business to higher growth rates?

Léo: Our storage business is going through a mix shift. 3PAR is growing triple digits year over year. We are in the early days of the P6000(?) launch.

Lesjak: 3PAR revenue is up triple digits on a normalized basis.

ISI question: If PSG transition could take a year, do you expect disruptions in PSG revenue?

Léo: I just want to be sure that people understand that PSG will be managed in a normal manner. The team and employees and everyone will continue as if we are a normal day-to-day business. That is the expectation that we have. I’m sure we can manage whatever transition happens.

One more question, from RBC Capital: Can’t hear it well. Sorry, RBC.

And that’s a wrap.

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