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HP: Common sense from no nonsense Meg


According to Meg Whitman, CEO, "HP is getting back to business fundamentals in 2012."


HP: Common sense from no nonsense Meg
Listening in on the earnings conference call of a large IT company like HP that is traded on US financial markets is always an interesting experience.

The company has a legal obligation to be truthful and straight-forward, because it is talking to the financial markets as opposed to, say, a big industry event with hype and hoopla. Anything that could be considered "misleading" for investors can get it into big trouble with the SEC.

Duquesne listened in on HP's Q4 and full year 2011 conference call, held on November 21, 2011.

Without getting into any detailed analysis, our impression of Meg Whitman, the new CEO, was quite positive - a no nonsense business professional, bringing a "common sense" approach to a very big set of business problems. She also provided some direct answers to some of the major questions concerning HP going forward.

We will summarise the "take aways" in the form of her answers to the big questions.

What is HP?

The short answer is that HP is HP and will remain HP. In other words, according to Meg Whitman, "the largest provider of information technology infrastructure, software, services and solutions to individuals and organizations of all sizes."

She also stated that "we're in the software business to deliver value for our customers, not to transform HP into a software company".

What about innovation ? Organic R&D versus M&A?

After several years of declining R&D, coupled with pricey M&A deals, HP is getting back into innovation and reinvesting in R&D.

The new CEO said : "we are driving more organic innovation with R&D", up this year (+10%) and again next year.

As for M&A, "We're going to get out of the M&A business". No big deals in 2012, although she did not exclude small focused acquisitions.

Where is the Itanium based BCS business going?

HP saw a -23% year-over-year sales decline, due in large part to Oracle's Itanium decision. In this area, HP is totally realistic, and understands that it is now basically managing an installed base.

As Meg Whiman said : "the BCS business is a declining business and it's a slow decline, but I don't think you're going to see an accelerating growth rate in that business. And so we just have to manage that as best we can and, again, invest in R&D so we get to a new platform as fast as we possibly can that allows us to service the clients that need this kind of power."

This is an interesting and new element. In this area, Duquesne has a lot to say about how BCS can best deal with a variety of customer situations, but we'll leave that for a full research note.

What about PSG ?

Meg Whitman has previously described the decision to keep the PSG business as "straightforward", considering the financials.

In this conference call she added that " the response from all corners has been overwhelmingly positive. There's no question in our minds HP and PSG are better together."

What can HP do about Services ?

This is still a real problem for HP. Revenue was basically flat and margins continued to erode.

On this point, no quick and easy solutions. According to the CEO, "We have a services turnaround on our hands". HP expects that the shift to higher margin services will take several years.

Can the Cloud save HP?

In the entire conference call, the word "cloud" not mentioned even once.

We take this as a good sign, even though - like eveyone else - we have lots to say about the cloud.

Summing up ?

According to Meg Whitman, "I'm incredibly optimistic about HP's future, but we need to get back to the fundamentals in 2012, and that's what this management team aims to do."

Clearly it will be a very big job, but contrary to the early skeptical impressions, Meg Whitman could well be the woman to get it done.


Wednesday, November 30th 2011
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Duquesne Advisory

Duquesne Advisory Ltd is a European firm, headquartered in the UK, dedicated to researching, understanding and advising clients worldwide on opportunities and trends in Information and Communications technology.

Research

Duquesne Advisory delivers in-depth analyses of Information and Communications Technologies, their implementations and their markets. Research is based on critical observation of the market by the analysts and their on-going contacts with the vendor community, together with hands-on, practical experience in consulting engagements.

Consulting

The analysts of Duquesne Advisory leverage the Firm’s ongoing market and technology research to undertake high added value consulting engagements for both ICT users and ICT providers. Focused on client service, their approach is rigorous and methodical, and at the same time pragmatic and operational.