HP innovation 'being undercut by legacy decline'

Meg Whitman

HP suffered a five per cent fall in revenue this past quarter, forcing it to adjust its financial outlook as it prepares to split into two businesses.

Hewlett-Packard's net revenue dropped to $26.8 billion, down from $28.2 billion a year ago, ahead of its split into an enterprise division and a printing and PCs unit later this year.

The tech giant's Enterprise Services group, which would comprise part of its enterprise division, doesn't look too healthy, however.

This group's revenue was down 11 per cent year on year to $4.9 billion this quarter, which ran from November 2014 to January 2015.

Its Enterprise Group (including servers, storage and networking) revenue was flat year on year at $6.9 billion.

While CEO Meg Whitman claimed the turnaround to a thriving HP remains on track, the numbers for HP's PCs and printing divisions were also down.

Personal Systems (which includes PCs) was flat year on year, while the printing group's revenue fell five per cent compared to last year, resulting in an overall drop in revenue for both groups of 1.8 per cent to $14 billion overall revenue.

However, Whitman pointed out that HP grew profit across all major business divisions, maintaining an overall operating margin of seven per cent.

She said in a statement: "We grew operating profit margins across all of our major business segments, increased investment in innovation, and executed well across key areas of our portfolio and in our separation activities. Our progress continues as we head into Q2."

Its Enterprise Group was running a 15.6 per cent profit margin, and enterprise services (applications, outsourcing and business services ) had a three per cent margin.

Printing and PCs together had a 9.8 per cent operating margin.

TechMarketView analyst Kate Hanaghan said Whitman's strategy was boosting profits, but innovation at the company was being undermined by losses in printing and PCs.

She warned: "The colossal challenge HP faces in growing the Enterprise Services top line is apparent.

"Furthermore, progress made selling [social, mobile analytics and cloud] services just seems to get wiped out by the steep declines in its traditional business."

Despite the shrinking nature of HP's legacy businesses, Hanaghan added that such deals are crucial to the company, so it must continue to chase them.

Whitman also blamed a strong dollar, which reduced the value of overseas deals such as Deutsche Bank's staggered multi-billion investment in HP's Helion Managed Private Cloud when converted back to US currency.

The company has adjusted its financial outlook for 2015 since it was made in November, estimating earnings per share to take a 30 cent tumble to be in the range of $3.53 to $3.73.

Whitman said: "We'll work hard to offset these impacts through re-pricing and productivity, but fully mitigating currency movements of this size would require reducing investments and mortgaging our future. We won't do that."

While HP hasn't set a firm date for the split, it has said it will take place before the end of its current fiscal year, which ends in October.