HP CEO Whitman: Company Is Firing On All Cylinders As It Gets Set To Split In Two

Hewlett-Packard CEO Meg Whitman Tuesday said the company is firing on all cylinders as it prepares to split into two new Fortune 50 publicly held companies.

Despite a negative impact from a strengthening U.S. dollar that caused HP to take down fiscal year 2015 earnings by 30 cents per share, Whitman told Wall Street analysts that she is confident the HP turnaround remains on track.

In fact, Whitman said she believes HP can still deliver flat sales for the full fiscal year on a constant-currency basis despite the currency headwinds.

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"We feel very strongly the turnaround is on track," said Whitman. "You can see it in terms of margin expansion across all the major lines of business. You can see it in growth in areas of the company that I think people were not sure we would turn around, like industry-standard servers and PCs."

The upbeat assessment came after HP reported non-GAAP diluted earnings of 92 cents per share on a 5 percent drop in sales to $26.8 billion. The Wall Street consensus was earnings of 91 cents per share on sales of $27.4 billion.

Among the bright spots was 7 percent growth in industry-standard server sales led by HP's Gen9 servers. HP said Gen9 represents one of the fastest-ever server sales ramps -- much faster than the Gen8 servers. "The Gen9 server was dead-on from a market perspective," said Whitman.

Whitman said the industry-standard server business is, perhaps, the biggest turnaround for HP over the last several years. "This was a very troubled business two years ago," she said."The [enterprise] team has done a remarkable job."

The biggest wild card in the flat constant-currency forecast is improved revenue performance from HP's Enterprise Services business in the second half of the year. In the first quarter, HP's Enterprise Services business was down 11 percent.

A positive note for HP Enterprise Services was an impressive multibillion-dollar, 10-year hosting and outsourcing agreement with German global banking behemoth Deutsche Bank that was just announced on Tuesday. The services-led deal, which was was two years in the making, represented a companywide effort that included HP's Helion cloud business and the enterprise group, said Whitman.

Whitman said HP had the "best technical solution," including its Helion Cloud, for Deutsche Bank to reduce costs significantly, increase IT agility and migrate to a new-style, IT cloud-based Dev/Ops environment. "Everyone in the industry wanted this business," she said. "It was a hallmark, or lighthouse, account."

Jed Ayres, chief marketing officer for MCPc, a $262 million, Cleveland-based national solution provider ranked No. 89 on the CRN Solution Provider 500 list, said the Deutsche Bank win and the rebound in HP industry-standard server sales is a sign that Whitman's hefty investment in innovative new products is paying off.

"Whitman is doing a great job," said Ayres. "This is going to come down to innovation and execution, and HP is performing well on both fronts. HP is warming up for the big dance in the data center with Moonshot, Nutanix and Memristor. They are firing on all cylinders when it comes to innovation."

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HP CFO Cathie Lesjak, for her part, said the robust Gen9 lineup, combined with the Windows Server 2003 refresh cycle, makes HP "fairly bullish" on the industry-standard server outlook. HP has improved the gross margins on industry-standard servers by driving product costs down and, at the same time, seen average sales prices increase, said Lesjak. "It has really been hard work at driving the right cost structure combined with the opportunity to drive attach," she said.

Whitman said the improvement in businesses that were flagging some time ago comes even as HP is making good progress on the separation front.

HP is set, effective Nov. 1, to split into two separate businesses: Hewlett-Packard Enterprise, a $57.6 billion enterprise services, systems, software and infrastructure business; and HP Inc., a $57.3 billion printing and PC business.

"We are executing on all cylinders," said Whitman of the HP split. "There has not been distraction to the core business. We have got a dedicated team focusing on the separation, and the rest of the company is focused on delivering for customers. I feel very good about that. And the feedback from partners and customers has been terrific."

HP also for the first time detailed the financial charges it will face for the split, which amounts to $1.3 billion in the current fiscal year and $500 million in fiscal year 2016.

What's more, HP said that 2,800 employees left the company in the first quarter. That brings to 44,000 the total number of employees that have left HP under a 2012 restructuring. That leaves 11,000 employees that remain to be furloughed as HP completes the restructuring throughout the rest of this fiscal year.

Whitman, for her part, said there are "lots of opportunities" to look at further ways to cut costs and operate more efficiently as the company prepares to split in two. "When you tear apart a company that has been built up over many years through acquisitions, through different systems being merged together, it is remarkable what you find," she said.

Ultimately, the split will make HP "much stronger as we go forward as two independent companies," said Whitman. "We are pretty excited about it. It is a huge amount of work. But it is exhilarating because we see the future where these two companies will be far more cost-effective than even we are today."

PUBLISHED FEB. 24, 2015