When Hewlett-Packard Co. reports quarterly results on Wednesday, investors would be wise to remember the new chief executive officer's remarks from three months earlier.
"We have a long road ahead of us," Meg Whitman said, as she outlined some of the steps she had taken to try to restore lustre to one of the tech sector's most storied companies.
The road to an HP recovery is still long – and its course still unclear. The Palo Alto, Calif.-based company is the world's largest PC and printer firm and one of the biggest players in servers, computer storage equipment, networking gear and tech services. But for much of the last decade, it has floundered, led in conflicting directions by four different CEOs. Its shares, which offer a dividend yield of 2.2 per cent, trade at a multiple of just five times future earnings, compared with a multiple of about 14 times for the broader market.
Since taking the helm last September, Ms. Whitman – a one-time CEO of eBay and more recently the Republican Party's gubernatorial candidate for California – has refocused on the basics.
She is striving to improve execution while eschewing acquisitions. She has overhauled the corporate structure to reunite the printer and PC units, and she has injected energy into the high-growth area of cloud computing. She has been outspoken about HP's failure to invest sufficiently in recent years to keep up with the market.
But the jury is still out on whether Ms. Whitman will be the company's saviour. After she took the helm, the stock price rose by one-third. But investors are realizing that there is no quick fix for HP. In its last earnings announcement, the company reported that all of its major businesses contracted.
The weak results and disappointing outlook left the Street calling for greater detail of management's turnaround strategy and sent the shares on a downward path. They now trade for the same price they did before Ms. Whitman replaced Leo Apotheker.
Analysts expect HP to report profit tumbled 55 per cent and sales fell 5.5 per cent in the most recent quarter. They want the company to start laying out the steps it plans to take to spur growth.
Ms. Whitman has spoken about the need to cut costs and invest more in research and development, which dropped by one-quarter over the last six years. With falling revenue and some $23-billion in debt, major cuts seem inevitable.
This past week HP was reported to be close to announcing 25,000 job cuts, representing about 8 per cent of its work force. By some estimates, the savings would top $1-billion, money that Ms. Whitman would love to direct back into R&D.
HP's innovation channel been starved relative to rivals such as IBM Corp., Oracle Corp. and Cisco Systems Inc. In addition, industry trends have started to work against HP. Today, smartphones and tablets are infringing on the traditional role of PCs. In addition, cloud services such as Dropbox and social networking sites such as Facebook are reducing the amount of documents and photos people print.
There are signs that HP's PC business is growing again at the expense of rivals. The research firm Gartner Inc. reported last month that HP's PC sales rose 3.5 per cent in the first three months of the year, outpacing the overall industry's growth of 1.9 per cent. Meanwhile, IDC Corp. estimated that HP regained share in the quarter, commanding 18 per cent of the world market for PCs, followed by Lenovo Group Ltd. (13 per cent) and Dell Inc. (12 per cent).
HP shares rose on the news, but could not hold onto the gains. It seems that investors want more – in particular, more about Ms. Whitman's turnaround strategy.