After all the changes and general turmoil at HP (see here and work back), it is hardly surprising second quarter results were at best mixed.
Headline revenue, was worse than expected, down 10% to $27.6bn and down 9% in constant currency. Meanwhile GAAP operating margins were down 1.4 points to 5.8%. Non-GAAP EPS however (before the nasty bits) were actually better than expected at $0.87. CE Meg Whitman pointed to ‘better than expected performance in enterprise services (ES) and printing’. Read into that accelerated cost cutting. One real area of improvement however is HP’s cash flow, which was up 44% to $3.6bn.
Looking across the operating divisions makes uncomfortable reading. Revenue was down across the board, with the biggest fall coming from the personal systems PC division, which was down 20%; 14% in commercial and 29% in consumer. Rival Dell posted a 9% decline in end user computing last month (see here). So it really looks like PC sales are in freefall.
Enterprise services (ES) was down 8% to $5.99bn, and the operating margin was down 1.1 pts to 2.6%. Application and business services (ABS) revenue was down 10% to $2.3bn, and IT outsourcing declined 6% to $3.7bn. On a sequential basis, ES revenue was actually up 1.3% thanks to 4% qoq growth in ABS, and the margin was up 1.3 pts. But this is really no cause for celebration. By any estimation, HP’s services performance looks pretty dismal.
Also of concern is the decline in software revenue. Down 3% vs. 2% in Q1, it seems to be gathering pace. Licence revenue was actually down 23%, and related services were down 5%. Only a 12% growth in support helped make the decline less alarming. Licence sales are of course a good barometer for future software growth, so these are not encouraging signs.
HP is at the early stages of a multi-year turnaround, and Whitman rightly acknowledges there is much work still to be done. What HP doesn’t need is further knock backs. So losing out on a major IT/BP bid at National Savings & Investments (NS&I) this week to incumbent Atos will be the last thing Whitman needed to help rally the troops (see Sighs of relief for Atos as it retains NS&I).