After the horror story that has been HP recently (see HP takes $9bn write-down on Autonomy), first quarter 2013 was calmer, but certainly no sign of glowing health.
In the three months ended 31 January, headline revenue fell 6% to $28.4bn and the operating margin fell 0.6 points to 6.2%. Meanwhile diluted earnings per share were down 14% to $0.63. The more positive news was on the balance sheet. Cash flow more than doubled to $2.6bn, and HP reduced net debt by $1bn to $4.7bn. Rebuilding the balance sheet over the rest of 2013 is key to HP’s turnaround plans.
President and CE Meg Whitman sees Q1 as the start of the turnaround, following the tough action HP put in place in 2012 to cut 27,000 jobs worldwide (see HP cuts jobs but ducks real challenges). She said, "While there's still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction.”
Revenue was down across all divisions (except financing, which was up 1%). Enterprise services revenue fell 7% to $5.9bn, and the margin fell to 1.3% vs. 2.3% last time. Software also fell by 2% to $926m, although the margin remained a healthy 17%. Alongside printing (margin 16.1%), software is now the other margin enhancing side of the business. However this is the first full quarter since Autonomy has been fully included, and the decline in revenue shows just how tough organic growth is now likely to be for HP Software.
Of course there is also the small matter of a legal battle with Autonomy’s founder Mike Lynch (see HP Autonomy – the saga continues). This is certainly going to be a big distraction for HP Software in 2013.
For the second quarter, HP is looking at GAAP diluted EPS to be in the range of $0.38 to $0.40 (as much as 63% lower than Q1 because it expects to take another set of acquisition-related charges worth c$0.42 per share). This goes to show that the turnaround is going to be long and painful for HP and its shareholders.
Whitman said HP would be bringing ‘a number of new programs and disruptive innovations to market in the coming quarters’. We hope they have some whizz-bang in there too.