Hewlett Packard Company (NYSE:HPQ) has been trying to change from a hardware company to a software and services company for some time. However, top level turmoil and acquisition troubles have been major stumbling blocks. Fortunately, the company may finally be getting its footing. There’s still more time to wait, but the signs are starting to look better for HP.
The Back Story
Hewlett Packard Company (NYSE:HPQ) has been a tough company to love lately. The most recent issue is with the purchase of Autonomy, a company out of the United Kingdom. The deal cost around $10 billion, and HP recently wrote off about $8.8 billion of that based on what it says are accounting irregularities.
The deal was supposed to help HP shift further towards software and services, but it hasn’t gone nearly as smoothly as hoped. Worse, it highlights a recurring theme for HP–despite a storied past, it hasn’t done a great job on the acquisition front of late. For example, HP also had to write off billions on its purchase of Electronic Data Systems. Overpaying seems to be a problem.
In addition to these business issues, there has also been turmoil in the executive suite. This included accusations of inappropriate behavior by a former CEO, multiple attempts to find a CEO that would stick, and board leaks that made the company sound a little too much like an espionage novel. The hiring of highly respected Meg Whitman, who helped to build eBay Inc. (NASDAQ:EBAY), has seemingly started to solidify things.
Earnings in the company’s fiscal first quarter were $0.63, down 14% from the prior year, but well above the company’s own estimates. Revenues were down 6%, but that was a better result than analysts had been expecting. So, the company is still struggling, but it is doing better than many, including management, had expected.
Commenting on the results, CEO Meg Whitman said, “While there’s still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for Hewlett Packard Company (NYSE:HPQ)’s future.”
A Solid Foundation
One aspect of the company that many people think needs to change is its reliance on hardware. While that is part of the goal, the hardware business is providing the company with a solid foundation on which to build. For example, the company is a leader in the stagnant printer and personal computer businesses.
While there have been discussions of jettisoning HP’s hardware businesses, they are highly profitable despite relatively low margins. In fact, it’s businesses like printers and ink that have allowed HP to make such a mess of its transition and still remain a financially strong company.
Not IBM, Maybe CA (NASDAQ:CA)
Many years ago, International Business Machines Corp. (NYSE:IBM) saw the writing on the wall and started to shift toward a more services-oriented model. An impressive increase in the company’s profit margin and fairly steady progress on the bottom line have been clear benefits of the shift. No wonder the company’s shares have been on an upward climb for years.