HP shares hit nine-year low in wake of Whitman warning


HP's shares plunged to a nine-year low yesterday after CEO Meg Whitman warned of an unexpectedly steep earnings slide in 2013, with revenue set to fall in every business division except software.

Wall Street had hoped for quicker signs of progress on Whitman's turnaround plan, which centers on transforming the former industry powerhouse into an enterprise computing corporation that can take on IBM and Dell.

Whitman told investors the company's recovery would start to become visible only in fiscal 2014, when investments begin to pay off.

The problem here is a lack of investor confidence in the current strategy.

She blamed unprecedented executive turnover in past years for dragging out the Silicon Valley company's turnaround.

Analysts say HP is struggling to shore up its credibility on Wall Street while battling crumbling margins, the tapering-off of IT spending, and an internal organisational overhaul that involves thousands of layoffs.

"I was surprised that nothing new was really said in terms of strategy, and the problem here is there is lack of investor confidence in the current strategy," said Shaw Wu, an analyst with Sterne Agee.

HP shares tumbled 13 per cent on Wednesday in the biggest single-day decline since August 2011.

Shares of some of HP's contract makers in Asia also fell when trading opened there on Thursday.

HP gave a particularly gloomy outlook for enterprise services, its business providing services to corporations and a key component of Whitman's rescue plan.

Revenue from that division will dive 11 to 13 per cent in fiscal 2013 and be barely profitable, with operating margins of zero to 3 per cent. That stands in stark contrast to IBM, which raised its full-year earnings outlook, reflecting its ability to manage costs, despite flat software revenue in the second quarter and a 2 per cent decline in services.

Whitman became HP's third CEO in as many years after taking over following Leo Apotheker's abrupt dismissal just over one year ago. She is trying to revitalise the former industry icon via layoffs, cost cutting, and expansion into areas with longer-term potential such as enterprise computing services.

"The single biggest challenge facing Hewlett-Packard has been changes in CEOs and executive leadership, which has caused multiple inconsistent strategic choices, and frankly some significant executional miscues," Whitman told the investor conference in San Francisco.

"This is important because as a result it is going to take longer to right this ship than any of us would like," she added.

HP has lost more than two-thirds of its value since 2010, when its capitalization topped out at about $104.5 billion. Squeezed by crumbling demand for personal computers in a mobile era, significant leadership turbulence, and the advent of Apple Inc's iPad that year, HP's stock embarked on a steady decline. The company now has a market value around $30 billion.

Since Whitman took the helm in September 2011, the stock has fallen about 35 percent.

Mike Nefkens, HP's acting global enterprise leader ,said fiscal 2013 "will be a fix and build year."

"We expect long-term growth to be back in the 3-5 per cent range and long-term profit to be in the 7-9 per cent range," he added.


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