H-P's Revenue Drops Yet Again As It Prepares For Split

   (FROM THE WALL STREET JOURNAL 11/26/14) 
   By Shira Ovide 

This is Meg Whitman's Hewlett-Packard Co.: Dramatically improved profits and no revenue growth.

In her three years as CEO of the Silicon Valley pioneer, Ms. Whitman's savvy management has led to higher profitability, more cash in company coffers and greater confidence among investors. But Ms. Whitman presides over a shrinking giant. Revenue has declined for 12 out of the last 13 quarters, including a 2.5% decline in the three months ended Oct. 31 compared with a year earlier, the company said Tuesday.

Stagnant growth and fierce competition prompted Ms. Whitman to announce last month a plan to break H-P in two. Her idea, which was greeted warmly by much of Wall Street, is that two more-tightly focused companies will be better able to navigate rapid shifts in the industry. The half of H-P that Ms. Whitman is slated to run is billed as the growth engine. The worry for her is that it's not.

What will be called Hewlett-Packard Enterprise -- a collection of products and services, including hardware, software, and consulting, marketed to corporate customers -- posted a 4.7% revenue decline in the fourth quarter. The company's old-guard business lines in personal computers and printers, which will form the second company, dubbed HP Inc., posted a scant revenue increase. The breakup is expected to be completed by fall of 2015.

H-P said all the company's business segments improved their operating-profit margin in the fourth quarter compared with a year earlier, the first time H-P has managed that feat for a couple of years.

"You have to give them credit for what they've done on profitability," said Daniel Ives, an analyst who tracks H-P for FBR Capital Markets. But, he added, "as much as the breakup is going to change things strategically, their growth issues remain."

The big culprit in H-P's declining revenue was the company's services arm, which largely comprises the EDS business acquired for $13 billion in 2008. Revenue in that outsourcing and support operation fell 6.9% from the same quarter a year earlier. H-P faces a squeeze in that market between high-end consulting operations like International Business Machines Corp. and software exporters such as Wipro Ltd.

Ms. Whitman in an interview said the services business "is not where we need that business to be," but she said there were hopeful signs. She pointed to growth in new contracts signed in the fourth quarter, for example, and strong growth in sales of new types of consulting.

Ms. Whitman said she was encouraged also by a coming lineup of new products in computer servers. H-P's sales of data-storage equipment declined from a year earlier, she said, and she repeated that "we have some work to do there." In a conference call with analysts Tuesday, Chief Financial Officer Cathie Lesjak said the data-storage business had "sales execution" problems.

Meanwhile, H-P's personal computer business, which Ms. Whitman almost ditched three years ago, has become a star. Revenue from PCs rose 4%, continuing several periods of rising quarterly sales. H-P executives reiterated Tuesday that hardware sales are benefitting from companies and consumers rushing to upgrade aging PCs.

Overall in the quarter, H-P reported net income of $1.33 billion, or 70 cents a share, down 5.9% from $1.4 billion, or 73 cents a share, a year ago.

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