Coming off thebiggest quarterly loss in Hewlett-Packard's history, CEO Meg Whitman bracedinvestors for even more trouble ahead as she methodically tries to fix a widerange of longstanding problems. Those challenges will be compounded by a feebleeconomy that Whitman expects to weaken even more during the next year.
HP said the internal and economicturmoil will cause its earnings to fall by more than 10 percent next year, adecline that hadn't been anticipated by analysts who follow one of the world'slargest — and most dysfunctional — technology companies.
Whitman delivered the disappointingforecast Wednesday at a meeting that the ailing Silicon Valley pioneer held foranalysts and investors. The gathering gave Whitman the opportunity to persuadeWall Street that she has come up with a compelling strategy for turning aroundHP one year after being named CEO.
Investors evidently didn't like whatthey heard. HP's stock plunged 13 percent after Whitman's presentation, shovingthe company's shares to their lowest level in nearly a decade.
HP's troubles stem from a combination ofmanagerial malaise, high-priced acquisitions that haven't paid off and aninability to offset the damage done to its personal computer and printerdivisions by the rising popularity of smartphones and tablet computers.
Whitman maintained that she inherited abloated, poorly managed company that hasn't been innovating quickly enough inany of its divisions, which span from PCs and printers to software and datastorage.
In a recurring theme during her tenure,Whitman said that she will instill the discipline, focus and accountabilityneeded to rehabilitate HP, but she reiterated that the recovery will takeseveral years to complete.
It could be 2015 before Hewlett-PackardCo.'s revenue growth begins to accelerate again, according to Whitman. By 2016,she envisions HP's revenue increasing as the same pace as the U.S. economy'soverall growth, with earnings rising at a faster clip.
"It is going to take longer toright this ship than any of us would like," Whitman said.
Investors are worried HP's woes willallow its competitors — a long list that includes such technology powerhouse asApple Inc., IBM Corp. and Oracle Corp. — to race even further ahead. In thatscenario, HP is constantly scrambling to catch up with new technology trends,leaving the company in a state of perpetual disarray.
Whitman, who won acclaim during asuccessful decade-long stint running eBay Inc., is confident HP can recapturethe drive and creativity that established the company as an industry leaderthrough most of its 73-year history.
She hopes to orchestrate the same kindof turnaround that has revitalized IBM after a long stretch of decay brought onby the shift from mainframe computers to personal computers in the 1980s and1990s. IBM managed to transform itself into a company focused on providingtechnology services and software, a transformation that HP is struggling toduplicate.
In her shake-up of HP, Whitman hasalready reshuffled management and started to eliminate 29,000 jobs throughemployee buyouts, attrition and layoffs. She's trying to trim the company'sannual expenses by more than $3 billion.
She assured analysts Wednesday that sheis imposing more internal controls to align employees' paychecks with theirperformance. She said she is also requiring the company to subscribe to technologyservices offered by smaller companies such as Salesforce.com Inc. and WorkdayInc. to automate many of HP's customer management and personnel systems.
HP also is reducing the number ofdifferent printers that it makes. It is also rolling out a new line of personalcomputers and tablets running on Windows 8, an overhaul of Microsoft Corp.'soperating system that's designed to appeal to consumers and companies that wantmore mobile devices with touch-control display screens.
Finally, Whtman wants HP to designanother smartphone, something it did two years ago after buying Palm Inc. onlyto scrap the device after a few months on the market. HP's return to thesmartphone business isn't planned for next year, though.
Whitman also is lacing big bets on "cloudcomputing" — a term that refers to the increasingly popular trend ofstoring software applications in remote data centers that are accessed over theInternet instead of installing programs on individual machines.
HP also is angling for a bigger piece ofthe "Big Data" market, a field devoted to helping companies andgovernment agencies navigate through the torrent of information cascadingthrough Internet-connected devices.
But the payoff from those initiativeswon't come in HP's fiscal 2013, which starts Nov. 1.
The company, which is based in PaloAlto, California, expects its earnings for fiscal 2013 to range from $3.40 to$3.60 per share, after stripping out charges for layoffs and other accountingmeasures unrelated to its ongoing business. The projection translates to an 11 percent to 16percent drop from the adjusted earnings of $4.06 per share that HP expects todeliver in its current fiscal year.
Whitman's forecast for next year caughtinvestors off guard because analysts, on average, had predicted HP's adjustedearnings would be $4.17 per share.
HP shares shed $2.22 to close Wednesdayat $14.91. The stock price has fallen by 35 percent since Whitman became CEOlast September.
Next year's revenue also will decrease,although HP didn't say by how much. The biggest problems will be concentratedin HP's technology consulting division, where revenue is expected to fall by 11percent to 13 percent next year. Technology consulting also faltered during thepast year, prompting HP to absorb an $8 billion charge to account for thediminished value of Electronic Data Systems, which HP bought for $13 billion in2008.
The EDS charge is the main reason thatHP lost $8.9 billion during its most recent quarter, which ended in August.Some analysts are worried HP will have to absorb another charge on an $11billion acquisition of software maker Autonomy, which hasn't lived up toexpectations since the deal closed last year. HP bought EDS while it was beingrun by Mark Hurd, who resigned in 2010 after the company's board raisedquestions about his expense reports. The company agreed to buy Autonomy duringthe reign of Leo Apotheker, who lasted less than a year as CEO before beingreplaced by Whitman.
"There are no silver bullets tosolve our challenges," Whitman said Wednesday. "We will solve ourchallenges through consistency of leadership, focus, good blocking and tacklingand, most importantly, great products and services delivered in the way thatcustomers want to buy them."