HP Warns of Significant Earnings Slide

by Jordan Richardson on October 4, 2012

Hewlett-Packard is expecting an earnings drop of more than 10 percent next year, according to CEO Meg Whitman. The announcement had shares dropping to a nine-year low on Wednesday, with Wall Street reacting instantaneously to a perceived lack of progress in company fortunes.

Whitman delivered the bad news to a group of analysts and investors, but she also insisted that her company had a plan going forward to turn things around. She admitted that she’d inherited a “bloated company” that wasn’t innovating fast enough to keep up with changing industry demands and consumer expectations. She also implied that things were worse than originally thought, adding that the company may not be profitable again until 2015.

“It is going to take longer to right this ship than any of us would like,” Whitman said.

In order for the company to swing around, investments have to start paying off (something Whitman says may not happen until 2014) and the cuts have to prove worthwhile.

In August, HP reported the largest quarterly loss in company history with a dip of $8.9 billion. The company wrote down the value of assets and booked the numbers as a loss in order to reflect lowered asset values, subsequently taking a charge of $8 billion to reflect the value of the 2008-acquired Electronic Data Systems. Also stinging HP at this point are severance charges for 27,000 job losses – many of which the company has yet to absorb.

With all this in the wind and many adjustments still to come, it’s hard to be optimistic about HP over the next couple of years. The company is banking on some new products, like the newly-revealed ElitePad 900 tablet for business and government workers.

The company still finds itself in the middle of an admitted “multi-year turnaround,” though, and reactionary investors don’t take well to being asked for patience. As a result of Whitman’s remarks, HP’s stock price lost $1.19 (about seven percent) to land at $15.94 over afternoon trading. Stock has fallen about 30 percent since Whitman took over last September.

HP has been lean on the details as to how much revenue is expected to dip next year, but they did suggest that the biggest problems with sit with the technology consulting division. Revenue is expected to fall by 11 to 13 percent in that area alone, with operating margins between zero and three percent.

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Written by: Jordan Richardson. www.digitcom.ca. Follow TheTelecomBlog.com by: RSSTwitterFacebook, or YouTube.

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