Whitman gives HP harsh report card, outlines recovery plan

Her comments might be seen as an indictment of former CEO Mark Hurd, who some believe cut costs too deeply at HP

Hewlett-Packard has underinvested in its business and become "too complex and too slow," President and CEO Meg Whitman said Wednesday, offering a three-part turnaround plan to get the ailing company back on track.

Speaking to analysts and investors after HP released its financial results, Whitman offered a frank assessment of HP's challenges at the end of her first full quarter on the job.

It was a tough three months for HP, which saw its profit dive 44 percent and revenue decline by 7 percent. Its giant Personal Systems Group, where revenue skidded 15 percent, needs to build more innovative PCs, Whitman said.

"The fact is that, for all that's right with PSG, we underinvested in innovation in the last several years and we've been late to market too often," Whitman said.

She blamed last quarter's performance on the economy and on an industrywide shortage of disk drives. But she also admitted there are deeper problems at HP that need to be fixed.

"For years, we've been basically running our business in silos. Under that model, we've built some of the biggest franchises in technology, but it's also made us too complex and too slow," Whitman said.

HP has lost share in some of its most important markets, she admitted, including PCs and even in its valuable printer business.

Whitman's comments might be seen as a critique of former HP CEO Mark Hurd, now a president at Oracle, though Whitman didn't mention him by name. Hurd was praised by some for growing HP's revenue and more than doubling its stock price, but others said he achieved that by cutting costs too deeply and failing to invest for the future.

Whitman implied she's in the latter camp. "We didn't make the investments we should have in the last few years to stay ahead of customer expectations and market trends," she said on the conference call. "As a result, we see eroding revenue and profits today."

HP's recovery plan fits in three "buckets," she said. The first is fixing its execution, she said. That includes making its supply chain more efficient and cutting unnecessary models, or "SKUs," that make developing, selling and supporting products unnecessarily complex.

Next, HP must address the "ongoing problems" with each business unit, she said. That includes investing in technology for the future and streamlining processes and support services.

The last part is to capitalize on what Whitman sees as dramatic shifts in technology, especially around cloud computing, information management and security, she said.

It's a big challenge, not least because HP must find the money to reinvest in its businesses while continuing to deliver a profit to shareholders. "We have to save so that we can invest," Whitman said, meaning HP has to cut costs and become more efficient to get the money it needs to rebuild.

"We know what we have to do, we have a plan to fix it, but it will take time," Whitman said. "This is a multiyear effort."

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com

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