HP Considers Selling Underperforming Units
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In government financial reports, Hewlett-Packard acknowledges it may sell business units that fail to meet goals or contribute to corporate strategic objectives. The admission comes as HP struggles with declining sales, the aftermath of poor management decisions and deteriorating channel relationships.
Hewlett-Packard Co. isn’t committed to maintaining the company in its current form and is reviewing underperforming business units for possible sale or shutdown, according to recent filings with the Securities and Exchange Commission (SEC).
“We also continue to evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives,” HP wrote in its 10-K statement. Bloomberg reports the language did not appear in the same report last year, meaning it’s probably a policy change.
Just what “underperforming” means is unclear, as the SEC filing did not go into specifics. Business units could include everything from its Printing and Personal Systems (PSS), or discrete products within certain units, such as business-critical servers.
HP has a lot to choose from when considering what business units and products to sell. In the last quarter, HP saw overall revenues fall 5 percent compared to the same period a year earlier. Within individual business and product units, the slide is often worse. Servers sales are down 6 percent. The large Enterprise, Storage and Networking unit declined 9 percent. Personal systems and PCs fell 14 percent. And printers dropped 5 percent. The few bright spots in the HP financial statement came from networking gear, which increased 7 percent, and software, which holds Big Data specialist Autonomy as its centerpiece and jumped 9 percent, although most of that came from support services deals.
HP made clear that selling assets does not come with risk and may not have the desired outcome many investors may want. The report suggests HP is willing to sell at a loss to free itself from dead weight in its operations and on its books.
“When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated,” HP wrote.
HP is struggling to regain its footing nearly a year and a half after a near-meltdown precipitated by the failed launch of its tablet, the TouchPad running WebOS; the acquisition of Autonomy, and admissions that it wanted to shed its market-leading personal computer business. In the past year, HP has written off nearly $20 billion related to acquisitions -- specifically EDS, Autonomy and 3Com -- of $30 million spent over the last five years to bulk up the company.
With the 10-K filing, HP also acknowledges the SEC is investigating alleged accounting at Autonomy prior to the 2011 acquisition. HP asserts Autonomy’s management manipulated sales to make the company appear more productive and valuable, which led HP to pay a premium price of nearly $11 billion. Autonomy management, led by cofounder Mike Lynch, denies the allegations. Other companies that looked at acquiring Autonomy, including Dell Inc., say the price HP paid was obviously too much.
HP’s woes aren't just with underperforming units and Autonomy accounting woes; the 10-K report gives hints to weakened channel relationships contributing to the potential asset sale strategy. Solution providers have complained about the difficulty of doing business with HP, especially given murky leadership and lines of communications. HP’s ongoing struggles dampens partners' ability to market and sell HP products. Competitors, particularly Cisco Systems Inc. and Lenovo, are capitalizing on HP’s weakened channel.
In the report, HP acknowledges this trend, stating, “There are many challenges facing our business. Many of those challenges relate to structural and execution issues, including the following: we need to align our costs with our revenue trajectory; we need to address our underinvestment in R&D and in our internal IT systems in recent years, which has made us less competitive, effective and efficient; we need to implement the data gathering and reporting tools and systems needed to track and report on all key business performance metrics so as to most effectively manage a company of our size, scale and diversity; and we need to rebuild our business relationships with our channel partners.”
The SEC report paints a picture in which HP remains unstable and is willing to implement any measure, no matter how unpleasant, to return the company to a more stable, productive position.