Good day, bad day for HP’s Meg Whitman
On the upside, the company’s fourth quarter results sent the share price up 7% as they indicated that enterprise offerings are offsetting declines on the PC front even if certain key services sectors are hurting.
On the downside, she’s now facing shareholder legal action of claims of misleading investors in relation to the Autonomy acquisition instigated by her predecessor Leo Apotheker, late of SAP.
Let’s do the bad stuff first. Whitman and HP as a whole have received a court order to face claims in a shareholder securities class action in relation to alleged misinformation following the acquisition of Autonomy.
After HP wrote-down $8.8 billion on the acquisition, investors last November sued the company, alleging that they had been misled by HP and Whitman in statements made between May and June last year.
US District Judge Charles Breyer ruled yesterday that investors can go ahead with allegations against HP and Whitman.
Breyer said that Whitman had omitted key information that complainants say she possessed at the time and his ruling states that Whitman was considering accounting discrepancies at Autonomy as an excuse for HP’s poor performance.
Critical to Breyer’s decision appears to be a 10Q filing with the SEC dated September 2012 which stated that the fair value of Autonomy approximated the carrying value whereas at the time HP already knew it might have substantially overpaid for the UK software house.
Claims against former HP CEO Leo Apotheker – who instigated the Autonomy acquisition – and Autonomy’s founder Mike Lynch were not upheld by Breyer who said there was no evidence that they had sought to mislead investors.
The securities class action against HP and its executives was brought last November by investors including lead plaintiff PGGM Vermogensbeheer B.V., a Dutch pension administrator operating in the healthcare and social work sectors.
It’s a twist in the tale certainly and one that confirms that the long shadow of the Autonomy purchase still hangs over HP even as Whitman plays up signs of successful turnaround in key areas, most notably cloud, big data, application and modernization and security all of which have shown doubt digit growth year on year.
But as the firm released its fourth quarter numbers yesterday, there were signs of pressure elsewhere. Technology services revenue has declined 6% year-over-year while IT outsourcing revenue is down 9% year-over-year. Licence revenue in the latest quarter down 24% year-over-year as the shift to SaaS takes its inevitable toll.
Whitman was upbeat on the conference call with analysts however:
“In enterprise services, the business is now more predictable and we continue to execute well against our recovery plan. ES revenue was down 9% for the quarter and down 8% for the full year, well within our previously provided outlook range. Operating margin in the fourth quarter was 4.4%, resulting in operating margin of 2.9% for fiscal 2013 at the high-end of the target range for the year.”
As to the wider turnaround, Whitman insisted:
“Overall I’m very pleased with the progress we have made but we still have a lot of work to do to drive consistent execution and navigate a rapidly shifting marketplace. As we enter the third year of our turnaround, we will continue to execute against the improvement areas we outlined at our Securities Analyst Meeting last month, including increasing our commitment to research and development.”
“Innovation is still at the core of Hewlett-Packard, that ultimately…our number of engineers, which are at the core of what’s going to drive innovation, are actually up year-over-year. We expect that R&D will be up across most of our segments, major segments next year and in total at the HP level.
“We’re still very much committed to driving on the right R&D at the right time in the right place.”
Printer and PC sales dropped marginally, though Whitman pitches HP as outperforming wider declines in the overall industry. There’s also of course the prospect of making waves in the 3D printer market, although Whitman is being cautious against setting expectations too high:
“We intend to play in the 3D Printing market because it isn’t adjacency. It’s obviously different than paper printing but some of the technology is the same. And at least as we see here today, we anticipate entering this organically.
“What we’re doing is focusing on what’s the value proposition by market segment, whether that be consumer or industrial. What’s the competitive differentiation and we’ve got some very interesting things coming. So stay tuned in 2014.
“But this is an acorn. We got to plant acorns than they will eventually become oak trees but you should think in 2014 and 2015 this is an acorn that maybe has very good long potential but the market is at its earlier stages.
“There is a lot of technology work that needs to be done to be able to print in the kind of timeframe that most consumers and most industries would actually find acceptable.”
As for her short term ‘to do’ list, Whitman said this falls into three buckets:
“The first is shifting market forces. As an example in personal systems, we are making progress on our mobility strategy, but we still have not broken through. Similarly, we are still in the early stages of building an ecosystem to capture a greater share of personal device accessories and services.
“Second is the change in competitive landscape. We need to keep the customer at the center of what we do and deliver comprehensive and innovative solutions as our competitors look to expand across the IT stack.
“And finally, the third bucket is our own ability to execute. At our security analyst meeting, we highlighted a number of areas where we need to execute better. For example, we need to do more work to fix our go-to-market strategy in enterprise group, particularly in channel engagement and pricing.”
And fourth, of course, dealing with the hangover from that pesky Autonomy problem…