HPs quarter afflicted by WebOS fallout, weak services mix

In its fourth quarter, Hewlett-Packard continued to deal with fallout from its decision to nix itsWebOS-based tablets, a less-than-stellar mix of services, and its month-old acquisition of Autonomy. The question is how long those reverberations will impact its profitability and growth prospects. Eight weeks into her job, CEO Meg Whitman used the earnings call to manage expectations downward and to reassure value investors that HP is in it for the long run.

Last year, former CEO Leo Apotheker dubbed mobile devices, cloud computing and enterprise software as key focus areas for HP a vision subsequently endorsed by Whitman after his ouster. Of those three areas, only enterprise software gave HP room to smile last quarter, however.

Here are the top takeaways from Monday nights HP fourth quarter and FY 2011 earnings call.

1: WebOS decision still hurts

For its full fiscal year, HP wrote off $3.3 billion in charges related to shutting down its WebOS hardware business, a move that put it behind in the race for tablet market share.But the WebOS saga isnt done yet: HP still has to decide on the future of the software itself. HP had banked on WebOS as the foundation of both its tablet and smartphone strategy. The TouchPad tablet is dead. What will HP do in phones?

2: Autonomy is huge

Whitman remains excited by the prospects Autonomy brings to the table in the area of big data. The $10.2 billion deal closed in October and in the ensuing month, HP formed a new information management business group combining Autonomy with Vertica and othe! r softwa re assets under former Autonomy CEO Mike Lynch who now reports directly to Whitman. Whitman touted Autonomys remarkable ability to manage unstructured information in a way that no one else in the market does which will add value across HP. When former CEO Leo Apothekerannounced plans to buy Autonomy for $10.2 billion, investor reaction was to run for the exits.HP lost $12 billion in market cap the following day.

Now, HP is banking that Autonomy will further boost its enterprise software business which logged $976 million in revenue for the quarter, up 28 percent from the year-ago-period. HP also reported 33 percent growth in software license sales; 36 percent growth in software-related services revenue; and 20 percent growth in support revenue.

3: No more big deals

No matter how glowingly HP execs now speak of the Autonomy deal, theyre taken the bad reaction to heart, and Whitman repeatedly stressed HPs future focus to be on internal, organic growth rather than more blockbuster acquisitions. R&D spending will increase across the product units, she said.

While HP might make some acquisitions, they will likely be in the sub-$500 million range We might get to $1 billion, but I doubt it, she said.

But, she also left some wiggle room. Let me reframe that. If there is a great acquisition thats in the $1 billion range, maybe we will take a look at it. But weve got to be sure it fills a hole, that we dont pay too much for it and that we are financially disciplined about it.

4: Very little cloud talk

No one on the call uttered the C word, but both Whitman and CFO Cathie Lesjack said HP must focus on higher margin services. To many that means cloud-related services. Whitman acknowledged that the company lacks the right tools and mix in that business which meant it didnt perform as well as it should have in 2011.

Lesjack concurred: We know that weve got to improve our mix of hig! her marg in, higher growth business services such as applications and thats going to take time.

One of the tentpoles of Apothekers strategy was for HP to field an array of cloud-based services, including marketplaces for both consumer and enterprise applications, reachable from a full array of HP-designed endpoints from smartphones and tablets to laptop and desktop PCs. Now that the tablet is dead and the company still has to articulate a smartphone strategy, its probably natural that the company would defer such discussion.

5: A lot of headwind

Whitman stressed that much of HPs current struggle derives from non-HP specific issues from the floods in Thailand that are constraining hard disk supplies, to a consumer spending slow down which is spreading to the commercial sector and which dinged sales of printing supplies. Some on the call seemed to doubt that characterization. Sanford Bernstein analyst Tony Sacconaghi said HP put more weight on the macroeconomic climate than its competitors.

Most companies are coming in slightly below normal seasonality for this quarter. You came in dramatically below normal seasonality. [HP industry standard servers] grew at minus 4 percent, IBM was up plus 1 percent, Dell was up plus 12 percent. [It] looks like you lost share. The PC market grew at 3 percent to 4 percent, you grew at 2 percent in units. [HP's printing business] grew more than 10 points slower than Lexmark. Just some simple benchmarking would actually suggest that youre losing share.

Whitman said HPs year was afflicted by both macroecomomic trends, including slower consumer and commercial segment spending, as well as its own mis-steps, especially its back-and-forth on keeping its big, but low-margin PC business.No question, we did ourselves in there, Whitman said.

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