Hewlett-Packard forecasts 10% earnings drop in 2013

HP CEO Meg Whitman delivered the bleak news Wednesday to investors. Its shares plunged 13 percent.
HP CEO Meg Whitman delivered the bleak news Wednesday to investors. Its shares plunged 13 percent. (PAUL SAKUMA / AP, File)
Posted: October 05, 2012

SAN FRANCISCO - Coming off the biggest quarterly loss in Hewlett-Packard's history, CEO Meg Whitman braced investors for even more trouble ahead as she methodically tries to fix a wide range of long-standing problems. Those challenges will be compounded by a feeble economy that Whitman expects to weaken even more during the next year.

HP said the internal and economic turmoil would cause its earnings to fall more than 10 percent next year, a decline that hadn't been anticipated by analysts who have followed one of the world's largest, and most dysfunctional, technology companies.

Whitman delivered the disappointing forecast Wednesday at a meeting that the ailing Silicon Valley pioneer held for analysts and investors. The gathering gave Whitman the opportunity to persuade Wall Street that she has come up with a compelling strategy for turning around HP one year after being named CEO.

Investors evidently didn't like what they heard. HP's stock plunged 13 percent after Whitman's presentation, shoving the company's shares to their lowest level in nearly a decade. Shares closed down $2.22 at $14.91.

HP's troubles stem from a combination of managerial malaise, high-priced acquisitions that haven't paid off, and an inability to offset the damage done to its personal computer and printer divisions by the rising popularity of smartphones and tablet computers.

Whitman maintained that she inherited a bloated, poorly managed company that hasn't been innovating quickly enough in any of its divisions, from PCs and printers to software and data storage.

In a recurring theme during her tenure, Whitman said she would instill the discipline, focus, and accountability needed to rehabilitate HP, but she reiterated that the recovery would take several years to complete.

It could be 2015 before HP's revenue growth begins to accelerate again, Whitman said. By 2016, she envisions HP's revenue increasing at the same pace as the U.S. economy's overall growth, with earnings rising at a faster clip.

"It is going to take longer to right this ship than any of us would like," Whitman said.

Investors are worried that HP's woes will allow its competitors - a long list that includes Apple Inc., IBM Corp., and Oracle Corp. - to race even further ahead.

In her shake-up of HP, Whitman has already reshuffled management and started to eliminate 29,000 jobs through employee buyouts, attrition, and layoffs. She emphasized to analysts Wednesday that she was imposing more internal controls to align employees' paychecks with their performance.

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