How Will Meg Whitman Change HP?

IDC and Gartner reports estimate that global PC shipments increased 3% over the year last quarter to 91.8 million units, shy of 5% growth projected earlier. HP maintained their lead by growing 5% over the year to retain 18% of the global market. Within the U.S., HP’s shipments grew 15% over the year to reach a market share of 29%.

HP’s Financials
HP (NASDAQ:HPQ) saw Q4 revenues fall 3% over the year to $32.3 billion, ahead of the market’s expectations of $32.05 billion. EPS of $1.17 was also better than the market’s expected $1.13 per share. The company ended the year with revenues increasing 1% over the year to $127.4 billion and EPS increasing 7% to $4.88.

By segment, over the quarter personal systems group revenues fell 2% over the year to $10.3 billion, with revenues from commercial clients growing 5% and consumer sales decreasing 9%. Imaging and printing group revenues fell 10% to $6.3 billion, and service revenues rose 2% to $9.3 billion.

For the current year, HP is targeting earnings of at least $4.00 per share, compared with market expectations of $4.56. The current quarter’s earnings estimates of $0.83-$0.86 were also short of the market’s targeted $1.11.

HP Retraces Steps
Last quarter, HP announced plans to spin off their personal systems segment and focus on software. Former CEO Leo Apothekar’s announcement of spinning off the PC, tablet and, smartphone businesses had not gone down well with investors. As a result, Apothekar was let go. Earlier this week, newly appointed CEO Meg Whitman reneged on HP’s decision to spin off the personal systems segment.

HP’s management now claims that their analysis on the PSG business returned results that show that “HP and PSG are better together” and they now plan to retain the PC business. Although they have not yet decided on whether to wind down their WebOS division, they did take an impairment hit of $885 million during the quarter. A decision on the tablet and the smartphone division is also pending.

HP also plans to focus on stabilizing their business and will shy away from big acquisitions, such as the recently completed $11 billion acquisition of Autonomy. Instead, Whitman believes that the company needs to focus on smaller acquisitions and increase investment in research and development. For 2012, HP is looking at acquisitions closer to the below $500 million valuation, especially in the software segment.

HP’s stock is trading at $26.65 with a market capitalization of $52.95 billion. It touched a 52-week high of $49.39 in February of this year.

It is a pity to see HP make a mess for the last few quarters. They engineered an impressive turnaround with Mark Hurd, and under the leadership of Apothekar, I expected them to expand within the software segment. Whitman is a decent operational CEO, but right now HP needs someone who can be creative on the strategic front – not an area she is as strong in, was evident during her term as CEO of eBay. In addition, she lacks enterprise experience and really only knows the consumer and small business markets. HP’s CEO-ship resting in her hands is a tricky situation. I hope she will surprise us!