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HP sees worse times before turnaround

Michael Liedtke San Francisco

Coming off the biggest quarterly loss in Hewlett-Packard’s (HP’s) history, chief executive Meg Whitman braced investors this week for even more trouble ahead as she methodically tries to fix a wide range of long-standing problems.

FILE-In this Friday, March 9, 2012, file photo, Hewlett Packard CEO and President Meg Whitman speaks at a conference on the Stanford University campus in Palo Alto, Calif. Hewlett-Packard Co. is expecting earnings to fall by more than 10 percent next year as CEO Meg Whitman struggles to fix a wide range of problems in a weakening economy. Whitman delivered the disappointing forecast Wednesday, Oct. 3, 2012, at a meeting that the ailing Silicon Valley pioneer held for analysts and investors. The gathering gave Whitman the opportunity to persuade investors that she has come up with a compelling strategy for turning around HP one year after being named CEO.(AP Photo/Paul Sakuma, File). Credit: AP

Those challenges will be compounded by a feeble economy that Whitman expects to weaken even more next year.

HP said the internal and economic turmoil would cause its earnings to fall by more than 10 percent next year, a decline that had not been anticipated by analysts who follow one of the largest – and most dysfunctional – technology companies.

Whitman delivered the disappointing forecast at a meeting held by the ailing Silicon Valley pioneer for analysts and investors on Wednesday. The gathering gave her the opportunity to persuade Wall Street that she has come up with a compelling strategy for turning around HP one year after being named chief executive.

Investors evidently did not like what they heard.

The company’s stock plunged 13 percent after Whitman’s presentation, shoving its shares to their lowest level in nearly a decade.

HP’s troubles stem from a combination of managerial malaise, high-priced acquisitions that have not paid off and an inability to offset the damage done to its personal computer and printer divisions by the rising popularity of smartphones and tablet computers.

Whitman maintained that she inherited a bloated, poorly managed company that had not been innovating quickly enough in any of its divisions, which span from personal computers and printers to software and data storage.

In a recurring theme during her tenure, Whitman said she would instil the discipline, focus and accountability needed to rehabilitate HP, but she reiterated the recovery would take several years to complete.

It could be 2015 before HP’s revenue growth begins to accelerate again, according to Whitman. By 2016, she envisions HP’s revenue increasing at the same pace as the US economy’s overall growth, with earnings rising at a faster clip.

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

Investors are worried HP’s woes will allow its competitors – a long list that includes such technology powerhouses as Apple, IBM and Oracle – to race even further ahead.

In that scenario, HP is constantly scrambling to catch up with new technology trends, leaving the company in a state of perpetual disarray.

Whitman, who won acclaim during a successful decade-long stint running eBay, is confident that HP can recapture the drive and creativity that established the company as an industry leader through most of its 73-year history.

She hopes to orchestrate the same kind of turnaround that has revitalised IBM after a long stretch of decay brought on by the shift from mainframe computers to personal computers in the 1980s and 1990s.

In her shake-up of HP, Whitman has already reshuffled management and started to eliminate 29 000 jobs through employee buyouts, attrition and lay-offs.

She assured analysts that she was imposing more internal controls to align employees’ salaries with their performance. She said she was also requiring the company to subscribe to technology services offered by smaller companies such as Salesforce.com and Workday to automate many of HP’s customer management and personnel systems.

Finally, she wanted HP to design another smartphone, something it did two years ago after buying Palm, only to scrap the device a few months later. Its return to the smartphone business is not planned for next year, though. – Sapa-AP

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