March 3, 2021

H.P. Plans Big Shift Toward Business Customers

Those would be the biggest moves yet by Leo Apotheker, H.P.’s chief executive, to refocus the company on business services and products. Mr. Apotheker has been trying to ramp up the company’s growth, which has been slow.

H.P. also said it would kill off its TouchPad tablet, which was just introduced in June and was meant to compete with the iPad from Apple, and stop making mobile phones that use the webOS operating system, which H.P. picked up when it bought Palm.

  “Today is most about transforming H.P. for the future,” Mr. Apotheker told analysts in a conference call. He said that “these are tough decisions.”

Splitting off the PC unit would eliminate the drag of that low-margin business on H.P. as it tries to move more toward providing corporate customers with services and cloud computing — a term used to describe delivering products and services online. Earlier this year, Mr. Apotheker outlined a plan to grow H.P.’s tiny business software unit and expand into the cloud. That strategy challenges I.B.M and Oracle, two giants in the market.

The spinoff of the PC unit would also reverse H.P.’s $25 billion acquisition of Compaq Computer, the PC maker, in 2002. For years, H.P. has said the consolidation of the PC companies gave it the scale to cut costs and secure favorable prices on parts, and also gave it clout with corporations that were also seeking servers, storage and other data products. In its earnings report on Thursday, H.P. showed that it was continuing to struggle with slow growth. While it reported net income in the quarter ended July 31 grew 24 percent to $1.93 billion, or 93 cents a share, versus $1.77 billion, or 75 cents in the year-ago quarter, the company said revenue inched up nearly 1 percent, to $31.2 billion from $30.7 billion.

The adjusted income of $1.10 was slightly above the expectations of Wall Street analysts. They had expected $1.09 a share and revenue of $31.19 billion, according to a survey of analysts by Thomson Reuters.

H.P.’s outlook for the fourth quarter was well below expectations. Revenue is expected to be $32.1 billion to $32.5 billion, short of the forecast from analysts of slightly more than $34 billion. Adjusted income is expected to be $1.12 to $1.16, again below the $1.31 predicted by analysts.

The company’s stock was down more than 7 percent in afternoon trading at $29.33.

Autonomy, which is British, could command a price tag of nearly $10 billion, according t That would be H.P.’s third-largest acquisition ever, after Compaq and Electronic Data Systems.

It would also represent a rich premium for Autonomy, which has a market value of about $6 billion. The company already trades at a much higher multiple than other software companies on the London Stock Exchange, Capital IQ data show.

For the 12 months ended June 30, Autonomy had revenue of $969 million, according to Thomson Reuters data.

The giant of England’s “Silicon Fen” in and around Cambridge, Autonomy makes software that searches and keeps track of corporate and government data. It counts BP, Ford Motors and the United States Defense Department among its customers. The company was founded in 1996 by Mike Lynch, the chief executive, who owns 8 percent of the company.

News of the deal talks was reported earlier by Bloomberg News.

Mr. Apotheker, who joined H.P. last year, is trying to revitalize the company after a series of disappointing quarters. Sales in a number of core businesses are weak because of internal missteps, shifts in the market and a slumping economy.

H.P’s computer business is struggling from an industrywide softness in demand, in part because of a shift in customer appetite for tablets. In June, the company introduced its TouchPad tablet in hope of taking market share from the iPad, but sales of TouchPads were slow, and H.P. had to cut its price 20 percent.

H.P.’s blockbuster acquisition of Compaq, championed by Carly Fiorina, then chief executive, was intended to give H.P.’s existing computer business extra heft against rivals like Dell and create another way to reach corporate buyers and sell them servers and other H.P. products.

H.P.’s subsequent track record in personal computers was mixed, however. Sales ebbed and flowed over time, but the business eventually took what many analysts considered to be a decisive turn downward with the shift from desktops and laptops to tablets.  Indeed, in the third quarter, H.P.’s revenue from personal computer sales fell 3 percent to $9.6 billion. Sales to consumers fell 17 percent while corporate customers rose 9 percent.

By jettisoning its tablet and mobile phone business, H.P. is surrendering in a market dominated by Apple, one that is a potential growth area. H.P. acquired the operating system for those devices through its $1.2 billion acquisition of Palm last year.

Mr. Apotheker had bragged about the TouchPad tablet, in particular, calling it a serious challenger in a burgeoning market. But in the end, consumers balked at buying the device, and it was  put out to pasture after just two months. “Our TouchPad has not been gaining enough traction in the market place,” Mr. Apotheker said.

Wall Street has been concerned about H.P.’s growth ever since Mr. Apotheker joined the company, and the weakening economy has added to the uncertainty. A series of disappointing quarters and forecasts had sent the company’s shares down nearly 22 percent since the start of the year.

Michael J. de la Merced and Jeffrey Cane contributed reporting from New York, and Julia Werdigier from London.

Article source:

Speak Your Mind