HP to Focus on the Cloud in Major Restructuring

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On the heels of a disappointing earnings report for its third fiscal quarter of 2011, HP executives said late Thursday that the company is looking at -- as well as taking -- some dramatic steps to realign the firm for a more profitable future, including the possibility it may sell, or spin off, its core personal computer business.

Certainly, a significant restructuring is in the cards, which includes killing off HP's (NYSE:HPQ) WebOS assets that it just acquired with the purchase of Palm a year ago for $1.2 billion. That also includes killing off HP's disastrous TouchPad, which sold very few units, despite all the hype running up to its recent release.

However, despite retaining its reputation as the largest PC maker in the world, whose Personal Business Group (PSG) pulled in revenues of $41 billion in fiscal 2010, HP said that it needs to realign its overall business strategy to focus on a future that's more forward facing toward the emerging market for cloud computing and related technologies.

For its third quarter ended July 31, HP brought in revenues of $31.2 billion, up from $30.7 for the same quarter of 2010 -- an overall growth rate of just 1 percent.

Accounting for costs to restructure and to adjust for other extraordinary charges, HP posted non-GAAP diluted earnings per share (EPS) of $1.10 for the quarter, up from $1.08 for the year ago quarter, a gain of 2 percent. Meanwhile, GAAP diluted EPS for the quarter came in at $0.93, up from $0.75 in the third quarter of last year, a 24 percent gain.

Sales of PCs (via PSG), were down 3 percent year over year, while revenues from the Image and Printing Group (IPG), fell by 1 percent. Both have historically been key revenue drivers for the company.

In contrast, services revenue grew by 4 percent, and Enterprise Servers, Storage, and Networking (ESSN) grew 7 percent year over year. Revenue from software, however, grew by some 20 percent, while financial services revenue surged ahead by 24 percent.

"We're focused on improving performance across the business," Léo Apotheker, HP's president and CEO, said in a statement. "HP is taking bold, transformative steps to position the company as a leader in the evolving information economy. Today's announced plan will allow HP to drive creation of long-term shareholder value through a focus on fewer fronts, thereby improving its ability to execute, invest in innovation and drive a higher-margin business mix," he added.

Company officials said that, for the fourth quarter, they expect HP to bring in $32.1 to $32.5 billion, and overall revenues of $127.2 to $127.6 billion for the entire fiscal year.

In furtherance of its restructuring strategy, HP also announced it will acquire enterprise information management software company Autonomy.

Financial markets were apparently not impressed by either the numbers or the restructuring plan. Near the close of trading on Friday, HP's stock was trading down $5.96, or 20.2 percent off, at $23.49, near the company's 52 week low.

Stuart J. Johnston is a contributing editor at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.

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