Arik Hesseldahl

Recent Posts by Arik Hesseldahl

The Aircraft Carrier Hewlett-Packard Begins Its Turn (Video)

Shares of Hewlett-Packard are heading up this morning on the heels of yesterday’s chock-full report, which included earnings that beat expectations and details of a restructuring plan that will see the company slash about 27,000 jobs over two years.

HP shares rose nearly 5 percent to $22.10, up $1.02 as of 11:15 am ET. Investors appear to be showing new confidence in HP and how CEO Meg Whitman is running the show. All the announcements that HP made yesterday bear repeating, because it was a busy afternoon:

  • The company says it plans to eliminate 27,000 jobs — about 8 percent of its work force — over two years, as part of a restructuring plan it says will help save between $3 billion and $3.5 billion in annual operating costs. The savings will be reinvested in growth areas of the IT business like cloud computing and services, and in a renewed focus on research and development. About 9,000 — or roughly a third — of the cuts will occur this year. Another batch — AllThingsD has been told the number is about 5,000 — will occur by way of voluntary retirement packages offered in the U.S.
  • HP reported quarterly earnings that beat the street’s expectations. While profits fell year on year by more than 30 percent, non-GAAP per-share earnings at 98 cents beat the 91-cent consensus handily. Sales also came in ahead of expectations at $30.7 billion and beat the consensus by $800 million — though that, too, was a decline of 3 percent. It was the third quarter in a row that HP has recorded year-on-year sales declines.
  • Mike Lynch, head of Autonomy, the British company for which HP paid nearly $12 billion last year, is leaving the company. Whitman talked about “disappointing results” at that unit, and complained in an appearance on CNBC this morning that Autonomy’s team was unable to close deals that HP had brought to the unit. Lynch, you’ll recall, is Autonomy’s founder, and was present at a pair of disputed meetings with senior executives of Oracle, at which the company may or may not have been shopping itself. Or just talking about databases in a lively fashion.
  • Here’s an interesting detail: HP is evaluating the carrying value of the Compaq brand name. Remember, of course, that HP acquired the PC maker Compaq way back in 2002. That deal ultimately made HP the PC-making powerhouse that it is today, but also had a lot to do with the downfall of Carly Fiorina, the company’s CEO from 1999 until 2005. The plan is to use the Compaq brand in a “more targeted” manner, CFO Cathie Lesjak said, and so HP will take a $1.2 billion impairment charge to write down the value of the name. One wonders if the letter Q might eventually come out of the ticker symbol “HPQ” on the New York Stock Exchange, and that it might revert back to the old “HP” “HWP” from before the 2002 acquisition.
    Update: A few readers have written to point out I was wrong about HP’s old ticker symbol. It wasn’t HP but HWP. Silly me. Even so, if the Compaq name is headed for some lesser level of importance in HP’s future, then perhaps the Q in the ticker symbol, which was added as a nod to Compaq’s old symbol CPQ, to give the impression that the combination was more a merger of equals, should go. Given the choice between them, I would vote for HP. I should stress that I have zero indications that this is even under consideration, and is really just me ruminating.

    Analysts had a mixed view. Chris Whitmore of Deutsche Bank Securities has been one of the more skeptical voices on HP’s turnaround prospects. “New sheriff, old game plan,” was the headline on his note to clients today. “We remain cautious on HP’s weak fundamentals, challenging macro conditions and deteriorating cash flow,” he wrote. Despite the beat on earnings, free cash flow — at $1.4 billion in the quarter — declined by half, pointing to what Whitmore calls “very poor earnings quality.” He rates HP as a “sell,” with a $20 price target.

    Brent Bracelin of Pacific Crest Securities wrote that he remains unconvinced that an unexpected strength in HP’s PC unit is sustainable. “Apple and Samsung now account for 39 percent of market share across PCs, tablets and smartphones, and have a volume advantage relative to HP’s 6 percent share,” he wrote in a note to clients this morning. He rates the shares “market perform,” or neutral, and worries that HP’s biggest problem is that about half its sales are still tied to PCs and printers.

    Whitman took to CNBC this morning to talk about HP’s situation. She portrayed the turnaround under way as about “10 to 15 percent” complete. That means there’s still a lot of work to do ahead. “We’ve laid a lot of pipe and done a lot of groundwork,” Whitman told the network’s anchors in a 13-minute appearance. I’ve embedded it below:

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    There was a worry before I started this that I was going to burn every bridge I had. But I realize now that there are some bridges that are worth burning.

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