Just as rival Dell reported disappointing revenues this week stemming from shrinking consumer interest in traditional PCs, Hewlett-Packard CFO Catherine Lesjak Wednesday reported a 5% decrease in revenue from last year (from $31.2 billion to $29.7 billion), along with a one-time $8 million write-down.
The world’s leading PC manufacturer saw a 10% drop year-over-year in its PC division revenue as sales of laptops fell 13% and desktops 8%. Like Dell CFO Brian Gladden the day before, Lesjak explained the drop by citing increased consumer interest in tablets, as well as their reluctance to buy PCs before Microsoft releases its new Windows 8 operating system this fall. Consequently, HP’s warehouses are bulging with unsold PCs. While noting this difficult consumer environment, Lesjak emphasized that HP could reduce that inventory by stimulating demand through more targeted marketing, and address operating costs partly through announced staff reductions. More people than expected, she told analysts, were accepting the company’s offer of early retirement.
HP must get lean, concluded Lesjak, while reinventing itself as a software and service provider as opposed to a pure equipment manufacturer. (HP did not respond to requests for an interview with Lesjak.)
At the earnings call, both Lesjak and chief executive officer Meg Whitman said the company faces an arduous road to recovery. “We are in the early stages of our turnaround and of our restructuring efforts,” said Lesjak. “[S]ome of the changes we are making to improve our business long term, such as realigning and restructuring our sales force, are impacting our revenue performance in the short term.”
To analysts and investors, HP for some time has appeared confused about how to handle the market shift toward mobile and tablets. A year ago, former CEO Leo Apotheker announced that HP would abandon its TouchPad tablet and essentially write off its investment in the WebOS operating system, which it got by acquiring the failed Palm for $1.2 billion in 2010. After Apotheker’s firing in September 2011, Whitman said the company would not be giving up on tablets.
On Wednesday, in fact, Whitman said she was “excited about new products to be launched in the fall.” She mentioned a fleet of ultrabooks and a Windows 8 tablet to “defend the company’s number-one position in the PC business.”
Analysts believe that unless HP begins to innovate itself, it will be doomed to competing with low-cost PC manufacturers, a competition that will inevitably drive down margins and profits.
Dell may be having a hard time keeping up with a rapid market shift away from traditional PCs toward tablets, but HP is trying to do so while also course-correcting from a series of bad investments and recovering from its largest quarterly loss in corporate history.
This morning HP’s stock, not surprisingly, fell 5%.