HP takes $8 billion writedown on services arm

Hewlett-Packard said Wednesday that it would take a US$8 billion charge in its third fiscal quarter owing to weakness in its enterprise services division.

The writedown is technically for "the impairment of goodwill" associated with HP's services. In the financial world, "goodwill" refers to intangible assets such as brand strength that are taken into account when determining a company's total value.

"Recent trading values of HP's stock, coupled with market conditions and business trends within the Services segment" necessitated the move, HP said in a statement.

HP greatly increased its services business with the 2008 acquisition of EDS for $13.9 billion, a deal that has been viewed as overly expensive.

In the same announcement Wednesday, HP said that Mike Nefkens, senior vice president and general manager of Enterprise Services EMEA, will serve as acting head of the whole division. He will report to CEO Meg Whitman.

Enterprise Services chief John Vistenin is leaving HP "to pursue other interests," the company said. Vistenin was appointed services head during the tenure of former HP CEO Leo Apotheker, who had a short, rocky run at the company and was replaced with Whitman in September 2011.

Jean-Jacques Charhon, formerly senior vice president and chief financial officer of the services group, has been appointed chief operating officer for the division, HP announced. His role will center on "increasing customer satisfaction and improving service delivery efficiency."

HP also said that it would incur a higher than expected charge in the third quarter related to a staff reduction plan announced earlier this year, due in part to "a higher than anticipated acceptance rate under its early retirement program." The company is anticipating a pre-tax charge of between $1.5 billion and $1.7 billion, up from the initial $1 billion estimate.

Also Wednesday, HP said third-quarter earnings are expected to come in at about $1 per share, an increase from its previous forecast of $0.94 to $0.97, if calculated under non-GAAP (generally accepted accounting principles) with those one-time charges set aside.

The company's shares were up $0.46 on the news to $19.42 in late trading, indicating some approval from investors for HP's moves and the adjusted third-quarter forecast, but the stock is still well down from past highs.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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