After Rocky Q1, HP CEO Whitman Makes Cost Cutting Top Priority


Enterprise Servers, Storage and Networking (ESSN) revenue fell 10 percent year over year with an 11.2 percent operating margin. Within ESSN, HP Networking revenue was flat, Industry Standard Servers revenue dropped 11 percent, Business Critical Systems revenue fell 27 percent and HP Storage revenue dipped 6 percent year over year.

Imaging and Printing Group (IPG) revenue fell 7 percent year over year with a 12.2 percent operating margin, and revenue fell in the commercial and consumer segments, for both printer hardware and supplies.

Whitman plans to boost HP's investments in cloud computing, security and information management, yet she characterized these as long-term initiatives. Given the looming threats to HP's traditionally profitable businesses, Whitman made it clear that restoring the company's financial health is her top priority right now.

"To seize this moment, we have to stabilize financial performance," Whitman said. "And it’s clear from both our revenue and margin profile that our current cost base just isn’t supportable. On the current trajectory, we just won’t have the capacity that we need to invest."

Whitman said HP can cut costs and complexity by reducing SKUs, upgrading customer facing sales systems, optimizing its supply chain and streamlining internal business processes. "It’s not easy work and it’s not a quick fix, but it holds the potential to improve the way we operate and execute and it simply has to be done. We have got to save to invest. We have got to save to grow."

It's unclear how this will impact Whitman's pledge, made last week at GPC, to "double down" on R&D in all of HP's business units.

In a Q&A during the call, Sanford Bernstein analyst Tony Sacconaghi asked Whitman to clarify her plans to bring stability to HP. "The first thing we have to do is stop the revenue decline, and the second is, we have to start growing revenue," she responded.

In order to achieve this HP will have to gain share in the markets in which it competes, and Whitman said this won't be easy given that unit costs are dropping in many of these markets. Acknowledging the vagaries of the macroeconomic environment, Whitman said she expects HP's revenue to "flatten out" by early 2013 and to start growing by the end of that year.

"If you look at business history, when companies go through turnarounds, these things are not quick," Whitman said. "It took us a while to get into this situation and it will take us a while to get out … we've got a long journey ahead of us."