Hewlett-Packard Company
'
s
(
HPQ
) current CEO Meg Whitman is keen on improving the company's
profitability by way of initiating a number of restructuring
programs.
The company is shuffling its top management in an effort to
restructure its low-margin Enterprise Services segment.
Hewlett-Packard declared that Mike Nefkens, services executive in
Europe, is replacing the enterprise services head John Visentin on
an acting basis. Enterprise services' Chief Financial Officer
Jean-Jacques Charhon is being appointed as the unit's chief
operating officer.
H-P also decided to write down the enterprise-services business
by $8.0 billion. The write-down is in relation with the acquisition
of Electronic Data Systems Corp., which was acquired by H-P for
$13.2 billion in 2008, when Mark Hurd was at the helm.
Following the acquisition, Hewlett-Packard was compelled to
enter into low-margin information-technology outsourcing business,
which is actually the forte of
Wipro Ltd.
(
WIT
) and
Tata Consultancy Services Ltd.
(
TCS
). However, Hewlett-Packard realized after the takeover that
Electronic Data Systems did not have enough technical depth for a
smooth transmission into cloud computing. Eventually, the company
failed to deliver efficient services that help clients provide
software over the Internet.
Moreover, the company upped its projection for pretax charge
from $1.0 billion to a range of $1.5 billion - $1.7 billion related
to a job cut announced in May. The CEO announced to lay off 27,000
employees by the end of fiscal 2014, which includes most of the
employees from the Enterprise Services unit.
The company expects the accounting adjustments to generate a
loss of $4.31 to $4.49 per share that comes to around $8.5 billion
to $8.9 billion, which will be the biggest quarterly loss HP has
suffered in its 73-year history. Over the last 15 years, this would
be the second time that HP will incur loss in a quarter.
Hewlett-Packard is a leader in today's technology-driven world,
and apart from cloud computing, the company has earmarked the
enterprise storage space as one of the most enviable growth areas.
We believe that H-P is doing very well in this category.
H-P looks to make its cloud computing services public within two
months. H-P's cloud services will be somewhat similar to the cloud
platform offered by
Amazon.com Inc.
's (
AMZN
) Web Services.
H-P's cloud infrastructure is also popular among its customers.
But its software- as-a-service offering may take some time to ramp
up, as it will be first used by the existing customers. On the
other hand, the economic turmoil, lackluster PC demand and Meg
Whitman's yet-to-be-proven strategies keep us on the sidelines.
Currently, H-P has a Zacks #3, implying a short-term Hold
recommendation.
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