Update: HP replaces enterprise chief, posts Q3 sales drop

HP's revenue fell 8 percent, with declines in all but one business unit

Hewlett-Packard reassigned Enterprise Group chief Dave Donatelli on Wednesday as it reported an 8 percent decline in revenue for its fiscal third quarter, saying all of its major divisions except software brought in less money than a year earlier.

Chief Operating Officer Bill Veghte will take over the Enterprise Group, which makes the company's x86 and Itanium servers and its enterprise networking and storage products. Donatelli will take on a new role helping to identify early-stage companies with potentially valuable new technologies, HP said in a press release.

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At the same time, the company said it will reassign Chief Marketing Officer Marty Homlish and merge its marketing and communications divisions under Henry Gomez, who is already chief communications officer and will take on the CMO role.

The financial report was gloomy but not unexpected. HP has suffered from declining sales in many of its businesses over the past several quarters.

The pain will continue even longer than HP had expected, according to President and CEO Meg Whitman. Speaking on a conference call about the third-quarter results, she backed away from an earlier forecast of year-over-year revenue growth in fiscal year 2014. Some parts of HP's business may see such a gain, but the company as a whole is unlikely to turn revenue around that quickly, she said.

Whitman laid some of the blame on poor execution in the enterprise business, which it will be Veghte's first job to correct. Among other things, the division's marketing and sales efforts are misaligned with the market, she said.

But in another grim indicator for HP, Whitman said the PC market keeps shrinking.

"The PC market has not stabilized as much as I had anticipated it would," Whitman said. "That stabilization has yet to occur."

Despite the lower revenue, HP turned in earnings ahead of its earlier forecast for the quarter. The company earned $0.71 per share, compared with its previously disclosed outlook of $0.56 to $0.59 per share. Not counting one-time items, the company's profit was $0.86 per share, matching the forecast by analysts surveyed by Thomson Financial. HP's revenue also met analysts' expectations.

However, ongoing sales declines continued in the quarter, which ended July 31. The Personal Systems Group suffered the biggest drop, with revenue down 11 percent from a year earlier. Within that division, notebooks were the weakest product category, down 14 percent in terms of units. The business was dragged down most by consumer sales, down 22 percent, while commercial revenue fell only 3 percent.

The Enterprise Group logged 9 percent lower revenue, led downward by Business Critical Systems (BCS), which were down 26 percent. BCS includes servers based on the Itanium processor family.

Printing revenue fell 4 percent, with revenue from supplies going down while hardware unit sales rose. The Enterprise Services and HP Financial Services divisions both posted revenue declines, but the company's software business logged a revenue gain of 1 percent.

Economic woes across much of the world hurt HP's ongoing recovery, Whitman said. Europe, the Middle East and Africa remained weak, with HP revenue falling 10 percent, while Asia-Pacific and Japan were mixed, she said. HP's sales grew in India but fell in China, where the economy appears to be slowing, Whitman said.

However, she said results would be worse without HP's continued cost-cutting. In the third quarter, another 3,800 employees left the company under an ongoing program to thin the ranks, and HP is on track to cut its workforce by 26,000 as planned by the end of this fiscal year, she said.

"I'm very confident that our turnaround is working," Whitman said.

The stock market didn't share her confidence on Wednesday. HP's shares (NYSE: HPQ) fell $0.46 to $25.38 in regular trading and had plunged another $1.88 in after-hours trading late in the day.

Copyright © 2013 IDG Communications, Inc.

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