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

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Last week at Hewlett-Packard's Global Partner Conference (GPC), CEO Meg Whitman rallied channel partners by vowing to return the company to its past glory, and in HP's first quarter earnings call Wednesday, she outlined the changes needed to make this happen.

In Whitman's first full fiscal quarter as CEO, HP reported revenue of $30.04 billion, down 7 percent year over year, and net income of $1.47 billion, or 73 cents a share, down 44 percent year over year. Non-GAAP earnings were 92 cents per share, compared to Wall Street analysts' consensus estimate of 87 cents per share.

For its fiscal second quarter, HP estimates non-GAAP earnings per share of 88 to 91 cents, and GAAP earnings per share of 68 to 71 cents. HP is sticking to its previous fiscal 2012 earnings forecast of $4 per share (non-GAAP) and $3.20 per share (GAAP).

After five months at the helm, Whitman said she now has a clear picture of HP's problems, and that the silos that exist within its organizational structure are one of the biggest. "For years, we’ve basically run our business in silos and under that model we’ve built some of the leading franchises in technology. But it has also made us too complex and too slow," she said during the call.

Another issue is HP's lack of R&D spending in recent years, which Whitman said has led to pressure on core businesses, including the Imaging and Printing Group, the Personal Systems Group, Enterprise Servers, Storage and Networking, and HP Services. HP spent $3.2 billion on R&D in fiscal 2011, a figure that represented 2.5 percent of annual revenue.

"We didn’t make the investments we should have during the past few years to stay ahead of customer expectations and market trends," she said. "As a result, we see eroding revenue and profits today. We need to invest now, as a market leader, from a position of strength."

PSG revenue fell 15 percent year over year with a 5.2 percent operating margin, as PC sales to businesses dipped 7 percent and sales to consumers dropped 25 percent. Last year's floods in Thailand, and "continuing difficulties in China," continue to pinch HP's supply chain, Whitman said.

Next: The Situation In ESSN & IPG

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