Hewlett-Packard absorbed the largest quarterly loss in its history as theSilicon Valley pioneer owned up to past mistakes that have left it scramblingto adapt to a shifting technology market.
The loss of $8.9 billion announced Wednesday didn't come as a surprise. HPtelegraphed the news earlier this month when it disclosed plans to take an $8billion charge to reflect the shrinking value of Electronic Data Systems, atechnology consulting service it bought for $13 billion in 2008.
It represented another mortifying setback for a 73-year-old company that oncehad the reputation for being a fountain of innovation —and a great place towork, to boot. Now, HP is struggling to reverse perceptions that it's becominga technological dinosaur bogged down in bureaucracy as it slashes its work forceto help offset a downturn in revenue.
The company is counting on Meg Whitman, its third CEO in slightly more than twoyears, to be its savior. While stressing she believes HP can still be greatagain, Whitman made it clear Wednesday that it will be a long slog.
"Make no mistake about it: We are still in the early stages of aturnaround," Whitman told analysts during a conference call.
That has become Whitman's mantra since HP hired her as CEO 11 months ago. Laterin the call, Whitman acknowledged "the very serious executive issues"facing HP as it tries to catch up to its rivals and cope with a weakeningeconomy, particularly in Europe.
Whitman, who became one of the world's best-known chief executives during adecade-long stint running eBay Inc., has been shaking things up at HP byreorganizing divisions, ushering in new managers and slashing costs through thejob cuts.
As Whitman's remarks underscored the enormity of the challenge facing HP, moreinvestors bailed out of the company's stock. HP shares sank 94 cents, or nearly5 percent, to $18.26 in Wednesday's after-hours trading, reversing earliergains after the latest quarterly results were released. The shares have lostmore than half their value in the past two years, a factor that contributed theEDS charge during the three-month period ending in July.
HP also had to absorb charges to cover severance payments for the first wave ofthe 27,000 workers it is jettisoning to dramatically reduce its expenses as itsrevenue shrivels. The company, which is based in Palo Alto, California, nowexpects to drop 11,500 employees from its payroll by the end of October, upfrom its previous target of 9,000. Another 15,500 employees will be let gothrough October 2014.
The cutbacks are driven by the rising popularity of mobile phones and tabletcomputers — devices that are reducing demand for personal computers. That's badnews for HP, which is the world's largest maker of PCs and printers.
To cope with the upheaval, HP has been expanding into technology consulting,computer software, data storage and high-end servers made for companies andgovernment agencies. All those specialties are more profitable than thefiercely competitive PC market, but HP hasn't been evolving rapidly enough toavoid an alarming deterioration in its financial performance.
Like several other major technology companies, HP has also been hurt by therecent economic turmoil in Europe. The uncertainty caused by unwieldygovernment debt in Europe has curbed spending on the continent.
If HP's slump worsens, management warned it may have to register additionalcharges in the current quarter to account for trouble in other acquisitions.Without citing specifics, HP executives pointed to the company's softwareoperations as one area that could be lumped with a major accounting charge.That division includes Autonomy, a business software service that HP bought for$11 billion last year.
The fiscal third-quarter loss Wednesday translates to $4.49 per share for aperiod covering the three months ending in July. The company earned $1.9billion, or 93 cents per share, at the same time last year.
HP's revenue sank 5 percent from last year to $29.7 billion. That was about$500 million below the projections of analysts polled by FactSet. It markedHP's fourth consecutive year-over-year quarterly decrease in revenue.
PC sales during the latest quarter fell by about 10 percent from the same timelast year, Whitman said. She traced the decline to fierce price competition, agrowing preference for tablet computers and smartphones, and postponedpurchases among buyers waiting for the release of a new line of machinesrunning Windows 8, a radical overhaul of Microsoft Corp.'s operating system setfor release October 26.
Whitman's clampdown on expenses also appeared to be delivering savings morequickly than Wall Street anticipated. If not for the company's various charges,HP said it would have earned $1 per share. That figure was 2 cents per shareabove analyst estimates.