HPs cup of woes is brimming over

Written by Darlington Jose Hector | Updated: Dec 3 2012, 08:00am hrs
When things start to go wrong it can go pretty much completely wrong. Hewlett-Packard (HP) must be feeling the same way right now. It has been an uphill battle for HP for some time with personal computers the world over giving way to tablets and its business strategies across functions being questioned by hardliners. And if thats not enough, the firm has been sued by an investor over a $8.8 billion write-down, that the tech major had said was related partly to alleged financial accounting irregularities at Autonomy Corp, the UK-based software company that it purchased last year. This kind of distraction is something HP can ill afford in a world dominated by Apple and Google, companies that have pushed PC majors like HP and Dell to the background.

The shareholder in his complaint has alleged that HP had tried to cover up that it had gained control of Autonomy based on falsified financial statements. HPs CEO Meg Whitman and its former CEO Leo Apothekar are both named defendants in the case. Autonomy chief executive Mike Lynch has written a letter to HPs board demanding details of the allegations that he and his team inflated revenue and gross margins. But HP has not yielded to such a request. HP had submitted documents to SEC and Department of Justice detailing the charges. HP had acquired Autonomy last year for $11 billion. The recent events have again pointed to HPs effectiveness or the lack of it, when it comes to acquisitions. EDS, Palm and Compaq come to mind immediately.

Analysts say that the last quarter has been HPs worst ever in history. Apart from having to resort to multi-billion dollar write-downs, it also registered a 5% revenue decline. Computer sales account for about a third of HPs revenues. After she took over from Apotheker last year, Whitman had said she will focus on IT infrastructure, which she believed was HPs key strength. This was a deviation from the stand taken by Apotheker who said software was the glue that held the company together, allowing it to thrive on the more attractive value added services sector, than PCs and servers.

In fact, last year HP had announced a proposal to put to rest its PC business, after tablets and smart phones started to hit traditional PC makers. Whitman is the one who intervened and stopped this move. Unfortunately for HP, its printer, services and enterprise server businesses are also on the decline. The company has attributed the falling sales to the slowing of the European and Chinese economies, but that argument may not hold water. It has already started to shed employees globally, as scheduled. HP in May had said that it would lay off 27,000 employees or so. But the point is how many companies have been saved by cost cuts Too few, for my liking.

But it has one solace. It has Dell for company its once bitter rival. HP and Dell have been fighting against each other for years to get the top billing in the personal computer space. But they have become backroom boys now. Last quarter Dells profit fell 18% and revenues dropped 8%. Computer sales account for half of its revenues. PC shipments have been sluggish reflecting the over all environment. Dell is trying its very best to see how it can turn around its fortunes by focusing more on avenues like consulting services. But that alone may not be enough.

Innovation is the key to any kind of greatness. All great companies know this, including HP and Dell. After all, both have been the best at what they do. They are technology majors who rode on efficiency and innovation to reach where they are. But starting and stopping, chopping and changing constantly have not helped anyone. Ever since Apotheker took over the mantle at HP, confusion has reigned supreme. There seems to be no clear strategy. For starters, he slammed the door shut on HPs new born TouchPad tablet. Analysts now feel that decision was reached too early. He then went after Autonomy. Things can backfire at any company, but with HP it is becoming a routine. Whitman is bearing the brunt of all the wrong moves now, and there seems to be no clear way out of this mess yet.