Hewlett-Packard's Enterprise Services division is going to be hit hard in the coming fiscal year, but HP CEO Meg Whitman and her executive team say they are on track to fix the business unit's problems.

Enterprise Services, which includes assets from HP's $13.9 billion acquisition of EDS in 2008, has been hampered by internal inefficiency, an outdated sales model and slowing demand for IT services, Whitman said last week in HP's annual meeting with Wall Street analysts.

Overall, Enterprise Services revenue is expected to drop 11 to 13 percent in fiscal 2013, with an operating margin of 0 to 3 percent. That's down significantly from fiscal 2010, when the unit reported an operating margin of 10 percent.

[Related: HP Says It Is Not Looking To Sell Its EDS Business]

To stem the decline, HP is planning to implement new systems for managing Enterprise Services employees and matching them to customer assignments, Whitman said at the event.

Whitman said outdated internal systems in particular have been preventing the Enterprise Services unit from reaching its potential. "This is putting us behind the 8 ball. In the Enterprise Services business, they have been struggling four years without a labor demand system," she told analysts.

In 2013, HP is implementing a new operational model for Enterprise Services in which salespeople for the unit's top 200 customers will be more accountable for revenue, cost and profit, Whitman said.

Mike Nefkens, acting head of HP Enterprise Services, said HP is looking to increase its skills in cloud, security and information management and analytics. HP is investing in a specialized sales team with expertise in these technology areas.

These changes, Nefkens said, should have a positive impact on Enterprise Services in fiscal 2013.

"Our recent financial performance is not an accurate representation of our potential to successfully run IT services," Nefkens told analysts.

Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, believes HP should steer Enterprise Services toward developing a public cloud offering. "They have very similar types of resources you would need to pull this off, particularly in a fully integrated data center," he told CRN.

NEXT: Pressures On Enterprise Services Business

HP's 2013 Enterprise Services outlook was dented by four major customers re-negotiating contracts and taking some operations in house, according to Nefkens. He said HP will increase its focus on lower-risk, higher-margin deals in the coming fiscal year, which begins Nov. 1.

HP acquired EDS in 2008 for $13.9 billion as part of former CEO Mark Hurd's quest to battle IBM in services, but last month wrote down $8 billion from the deal. CRN reported last month that HP had been looking for a buyer for EDS, but HP denied this was the case and said EDS is not for sale.

HP is confident that by revamping its internal sales systems and restructuring its accountability model for Enterprise Services reps, it can boost operating margin back into the 7 to 9 percent range, HP's Nefkens told analysts.

HP Enterprise Services has "global scale and market presence," which is something HP's competitors will have a tough time matching, Nefkens said.

"We handle mission critical work, and we can handle it anywhere in the world. We are the trusted adviser for our clients every day," Nefkens told analysts.

PUBLISHED OCT. 8, 2012