HP released another rather dismal set of quarterly results last night. The numbers once again show that HP is under great pressure across so much of its business. Management acknowledge that, and they’re addressing it, but are they being radical enough in the face of hugely disruptive market change?
Overall Q1 revenue was down 7% year-on-year at $30.0bn. That’s HP’s lowest quarterly revenue tally since Q3 FY09. At constant currency the decline was a shade lower at 8%, while acquisitions (not least Autonomy) will have helped a bit too. Revenue fell in Americas, in EMEA and even in Asia-Pac. Operating margin (8.6%), EPS and cash flow all showed declines.
CEO Meg Whitman was candid in her comments to analysts, citing a mixture of operational deficiencies and external factors (notably the economy and hard disk drive shortages). “HP is pressured on multiple fronts”, she said, and it’s hard to disagree. Revenue fell by 15% in personal systems (PSG), 10% in enterprise servers, storage and networking, and even the once-stalwart imaging and printing group registered a 7% decline. All three saw margins slip too.
The trouble is that, Whitman’s answer to such challenges seems to be more of the same, just better. She talks openly about improving execution, reversing HP’s underinvestment in innovation, tackling the cost base and addressing the dysfunctional characteristics of HP’s siloed business. But we are not hearing a cogent strategy for addressing what is becoming a seemingly unstoppable decline in market share. Where is HP’s answer to the shift towards Apple OS and Android devices and the onset of BYOT and end user device selection in the workplace, for example? Just as for Dell (see Dell Q1: the perils of BYOT), it seems to be about more and better Windows ultrabooks and the like.
Meanwhile in services, there remains a huge amount of work to be done, despite a 1% rise in revenues in the quarter. Here too margins are under pressure, not least because HP’s business mix remains too heavily weighted towards lower-end, less differentiated business for a player with its cost base. Again Whitman talks of fundamentally improving what she’s got, rather than anything to update radically HP’s services strategy in the face of market change.
Let’s end on a potential bright spot. Software revenues were up 30%, with a slight improvement on operating margin. More on that to follow in a separate post for HotViewsExtra readers.