Hewlett-Packard appears to have stopped the bleeding, but Chief Executive Officer Meg Whitman said Monday that the process of repositioning the company poses many challenges and may take years.
In its fourth quarter results, released Monday afternoon, HP (NYSE:HPQ) reported that net income was down 91 percent year-over-year. However, that still beat analysts’ expectations.
HP reported non-GAAP net revenue of $127.4 billion for fiscal 2011, up one percent over the prior year. It reported non-GAAP diluted earnings per share of $4.88 and free cash flow of $9.1 billion, up seven percent and eight percent, respectively, over the prior year. Fiscal 2001 GAAP net revenue was $127.2 billion, while GAAP diluted earnings per share came in at $3.32.
On Monday’s call—Whitman’s first since taking charge of the troubled company in September—Whitman acknowledged the turbulence and confusion that has surrounded the company recently, but also pledged to get it back on track by focusing on fundamentals.
“We didn’t live up to our expectations in 2011,” she told analysts and investors. “We need to get back to doing what we do really well: being the reliable, trusted partner with whom our customers want to work, and delivering the reliable, consistent results that all of you can count on.”
She added, “It’s going to be important to provide as much clarity as possible about our future because over the course of last year, and certainly on our last earnings call in August, we confused customers, employees, shareholders and partners on one fundamental issue around HP’s strategy. As I travel, the one question I keep getting is: ‘What is HP?'”
Whitman’s answer is that HP is the largest provider of information technology infrastructure, software, services and solutions to individuals and organizations.
“Just to be clear, we’re in the software business to deliver value to our customers, not to transform HP into a software company,” she said.
Whitman took the helm at HP from former CEO Leo Apotheker, who himself was in charge of HP for less than a year. In his tenure, caused a number of shockwaves that included speaking in public about the possibility of taking HP out of the PC business, shuttering its tablet computer business and acquiring Autonomy for $11.7 billion. The latter, which HP closed in October, was controversial among analysts and shareholders.
Whitman promised to bring stability back to the company.
“HP has all the components of an outstanding company, but we’re not taking full advantage and leverage these parts to drive the result where the whole is greater than the sum of the parts,” she said. “We need to be simpler, clearer and more consistent. No more surprises.”
She said the company would eschew big acquisitions for the time being and focus on investing organically.
But while Whitman is promising a steady hand at the tiller, the future may present some turbulent waters. The company’s enterprise server, storage and networking unit, which had been doing well despite the economic turndown, was down four percent from a year ago. The company also reported that its ink business, long a cash cow, has also been struggling as consumers cut back on ink. And Whitman said the company has underinvested in research and development. While she has turned that around, it may be several years before the market sees the results of the increased R&D spending.
“We believe the company’s expectation of year-over-year revenue declines throughout F2012 and commentary pointing to the potential for weakening operating/EBIT margin trends going forward will leave investors to further question the competitive pressures facing each of the company’s core operating segments over the coming quarters/year,” said Stifel Nicolaus Analyst Aaron Rakers.
However, Whitman said she is confident that HP can find its course again.
“Were getting back to the basics of executing business fundamentals, which frankly we struggled with in 2011,” she said. She added, “We did not execute consistently in FY2011. I’m confident we’ll restore the execution consistency we’ve all come to expect.”