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HP hit by $8.9B loss on expected charge for EDS flop

Hewlett-Packard absorbed the largest quarterly loss in its history as the Silicon Valley pioneer owned up to past mistakes that have left it scrambling to adapt to a shifting technology market.

The loss of $8.9 billion announced Aug. 22 didn’t come as a surprise. HP telegraphed the news earlier this month when it disclosed plans to take an $8 billion charge to reflect the shrinking value of Electronic Data Systems, a technology consulting service it bought for $13 billion in 2008.

HP also had to absorb charges to cover severance payments for the first wave of the 27,000 workers it is jettisoning to dramatically reduce its expenses as its revenue shrivels. The company, which is based in Palo Alto, Calif. and has offices in Boise, now expects to drop 11,500 employees from its payroll by the end of October, up from its previous target of 9,000. Another 15,500 employees will be let go through October 2014.

The cutbacks are driven by the rising popularity of mobile phones and tablet computers — devices that are reducing demand for personal computers. That’s bad news for HP, which is the world’s largest maker of PCs and printers.

To cope with the upheaval, HP has been expanding into technology consulting, computer software, data storage and high-end servers made for companies and government agencies. All those specialties are more profitable than the fiercely competitive PC market, but HP hasn’t been evolving rapidly enough to avoid a downturn in its financial performance. The downturn has battered its stock, which has lost more than half its value in the past two years.

Like several other major technology companies, HP has also been hurt by the recent economic turmoil in Europe. The uncertainty caused by unwieldy government debt in Europe has curbed spending on the continent.

“Make no mistake about it: We are still in the early stages of a turnaround,” HP CEO Meg Whitman told analysts during a conference call.

Whitman, HP’s CEO for the past 11 months, has been shaking things up by reorganizing divisions and slashing costs through the job cuts.

The fiscal third-quarter loss announced Aug. 22 translates to $4.49 per share. The company earned $1.9 billion, or 93 cents per share, at the same time last year.

HP’s revenue sank 5 percent from last year to $29.7 billion. That was about $500 million below the projections of analysts polled by FactSet. It marked HP’s fourth consecutive year-over-year quarterly decrease in revenue.

Investors seemed relieved that the erosion wasn’t worse. HP shares edged up 25 cents to $19.45 in the Aug. 22 conference call.

Whitman’s clampdown on expenses also appeared to be delivering savings more quickly than Wall Street anticipated. If not for the company’s various charges, HP said it would have earned $1 per share. That figure was 2 cents per share above analyst estimates.

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One comment

  1. Well at least the IBR had a notation about it, albeit from the AP, and with no practical news analysis, i.e. “what does this mean for Idaho?”

    For some time, even back in my days with Idaho Tech Connect, I spoke off the record with several high ranking HP execs, and later with ones in NM and California. Several flatly stated they had sent suggestions and direct missives to high-ranking officials in, and on the periphery of, Idaho state government, over a number of years stretching back a decade+, indicating their dissatisfaction with state policies relating to taxes, education, investments in infrastructure, healthcare, etc. These things had a direct effect on HP’s ability to attract and retain key talent. All got pretty much the same response: that deer-in-the-headlights look of dumbfounded amazement, especially from powerful members of the legislature.

    Now the wolf is at the door; the imaging division, long HP’s cash-cow is under assault, and while not near collapse, looks to be a sacrifice to fund other less prosaic strategic thrusts of the company (cloud, services, etc). I fully expect, given what Wall Street’s important judgement on the company makes, that HP-Boise will shortly have some very momentus changes.

    What should bug every IBR business reader is how and why Idaho state government is, or seems to be, completely in the dark about one of the state’s critical technology employers…one whose FTE tabulation has been constantly shrinking. I used to think they were just stupid, and as we all well know Ron White’s famous dictum, “you can’t fix stupid”. I don’t think that any longer; it’s benign neglect of the Idaho tech sector, complete with malice aforethought, to basically run off these kinds of industries that employ people with serious critical thinking skills that represent a key threat to their bozo control of the political space.

    They’re about to get their wish.