HP CEO Meg Whitman: 10 Signs HP's Turnaround Is On Track

A New Style Of IT Is Taking Hold

Hewlett-Packard CEO Meg Whitman told Wall Street analysts Wednesday that after two years on the job she is confident the company is "headed in the right direction" with acceleration in the five-year turnaround plan expected in Fiscal 2015. Whitman says the new style of IT offerings from HP including an enterprise-grade public cloud service, the Haven big data platform, Moonshot converged infrastructure and HP security solutions are poised to drive sales growth. "While there is a lot more work to be done, we are making real progress," she said.

Whitman's upbeat outlook sent HP shares up 9 percent on Wednesday to close at $22.60. Here are 10 signs from Whitman that her five-year turnaround plan is on track.

A Strong Balance Sheet

Whitman says HP's strong balance sheet is proof that HP is a stronger company than it was a year ago. HP has reduced its operating company net debt by nearly $8 billion over the last year, bringing it below the high debt level that soared when it paid $12 billion for Autonomy in 2011. "With that enhanced financial strength, I can tell you we have got a lot more flexibility to return cash to shareholders and to make investments needed to grow our business," said Whitman.

HP has also generated approximately $7 billion in free cash flow in the first nine months of the fiscal year, well ahead of initial guidance for the year. In fact, HP expects $8 billion in free cash flow for Fiscal 2013. What's more, HP says it has met or exceeded earnings per share outlooks from the outset of the turnaround.

HP's Enterprise Services Business Is Getting Back On Track

Whitman says the $18 billion enterprise services business, the bulk of which came from HP's $13.9 billion acquisition of EDS five year ago, has been stabilized.

"When I became CEO, ES [Enterprise Services] was suffering from a number of different challenges: inconsistent leadership, inconsistent strategy, the poor integration of the EDS acquisition and some very serious executional challenges," said Whitman.

Over the course of the last year, Whitman says, HP has significantly reduced under-performing accounts and improved the "predictability of the business" by investing in critical IT systems to run the labor intensive business. "We have reduced costs, and during the first three quarters of fiscal 2013, we delivered operating margin at the high end of the outlook we gave last year," she said.

Costs Are Now In Line With Sales

Whitman says that HP's massive restructuring plan to get costs in line with sales is on track. That is set to result in a reduction of run rate labor expenses by more than $3 billion in Fiscal 2014. Whitman says other steps HP is taking to reduce costs are paying off. "After Fiscal 2014, under my leadership, we are not going to do another big restructuring," she said. "We have got to get ongoing productivity improvements built into our normal course of business. Ongoing productivity has got to become part of HP's DNA."

A New Leadership Team

Whitman says some big changes in the executive management team and in the middle management ranks are making a big difference. "When it comes to leadership my philosophy is as follows: You have got to have the right person in the right job at the right time with the right attitude," she said. "We have made critical moves this past year to bolster our senior leadership team." That includes the appointment in August of Bill Veghte (pictured) as the new executive vice president of the enterprise group; the appointment in June of Dion Weisler as the new printing and personal systems boss; and the appointment of Martin Fink as the new chief technology officer and CTO of the company. Just as important, HP has appointed midmarket leaders that are changing the game, including Sue Barsamian, who was promoted to the newly created role as senior vice president of HP worldwide indirect sales in September.

Improved Systems To Help Drive Turnaround

Whitman says HP has made significant investments in internal systems to help drive a turnaround. The lack of those critical internal systems was holding the company back, says Whitman. "I know many of you are thinking this sounds pretty basic, but the reality is when I arrived as CEO, basic instrumentation and operating cadences did not exist in the way that you would expect for a company of HP's size and scale and complexity," she said. "We had to build a lot of this from scratch."

A New Urgency To Connect With Customers And Partners

HP paid dearly for CEO turnover and what Whitman called a "lack of consistent strategy" over the last five to seven years. That inconsistency "really hurt us here," she said. "The good news is now the entire company is focused on reconnecting to our customers and to our partners. Nothing is more important for the future of HP."

This year alone, Whitman said, she has met with over 1,000 customers and partners. That kind of engagement is taking place at not only the senior executive level but also throughout HP, said Whitman.

"Our focus is on delivering great experiences to our customers with every single interaction, whether that be in delivery of product or services or whether that be in a sales call or selling a solution," she said.

Smarter HP Innovation

Whitman says a stepped up focus on getting a greater return on its more than $3 billion in annual research and development spending is showing rewards. "Our efforts here are paying off in the form of some new very exciting products, services and solutions that map directly to our company's strategy and are much more closely aligned with our customer needs and how they want to buy from us," she said.

One sign of the new stepped up focus to get cutting edge technology out of the labs quicker is HP's new OneView converged infrastructure management product. OneView, which was announced just last month, was being worked on by HP Labs over a four-year period, but HP's converged infrastructure team, essentially in startup mode, accelerated the pace of the product rollout.

Fast Changing IT Landscape Favors HP

Whitman says the paradigm shift to a new style of IT favors HP's broad and deep portfolio from devices to the data center. In fact, Whitman said, the monumental shift taking place in the market puts HP in a prime position to deliver a unique set of solutions that will range from client devices to converged infrastructure to unique software and services "Only HP has the ability to deliver across that full spectrum," said Whitman. "This is where our opportunity lies and how we are very different from many of our competitors. Only HP can provide solutions from a device to the data center, from infrastructure, software and services. We provide unique solutions in security, cloud, mobility and big data that are made possible only by the breadth of our offerings that leverages each of our individual business units."

New Innovative Products, Services To Power HP Growth

Whitman says HP has a stable of new innovative products and services to power future growth. Those offerings including new converged infrastructure products like Moonshot (pictured), HP's enterprise-grade public cloud, big data solutions like Haven, Autonomy and Vertica, and security software like TippingPoint, ArcSight and Fortify. "These products I have highlighted are great fast-growing businesses that over time will become bigger revenue engines for HP and will in fact overtake our declining businesses," said Whitman.

Key to HP's successful turnaround, Whitman says, is managing the transition from declining businesses like HP's enterprise business critical systems, traditional storage, consumer PCs and home printing to the new growing businesses.

A Renewed Spirit

There is a "renewed sense of spirit and determination" among the company's 275,000-plus employees, said Whitman. "Our employees call it the will to win,’ she said. What's more, Whitman said, HP customers are cheering for the company to succeed. "They want us to win," she said. "They value the products and the services that we provide. They have made enormous historical investments in HP technology, and they really appreciate our role in driving innovation and defining the marketplace particularly in an industry where they see consolidation. They value our opportunity to operate in a heterogeneous environment and our embrace of an open standards approach. So this gives me tremendous optimism despite all the challenges that we face and all the challenges that we deeply understand. In short, I have real confidence that we are headed in the right direction, that we will turn this company around."