HP's Fiorina says growth at the low end

HP's Fiorina says growth at the low end

Hewlett-Packard is likely to show fourth-quarter revenue growth in the low end of its expected range, in part because of supply issues related to the massive earthquake last week in Taiwan, according to Carly Fiorina, the company's recently named president and chief executive officer.

Fiorina spoke with financial analysts last week, touching on HP's weaknesses and strengths, as well as detailing changes she is already making that are aimed at putting the firm back on track, including organisational and personnel shifts.

Fourth-quarter revenue growth had been expected to be in the 10 to 13 per cent range "and until very recently, we remained comfortable with that range", Fiorina said.

"But we also had been counting on the very strong performance in several product lines -- especially in PCs -- to offset the weakness in the US field. With the Taiwan [earthquake] disruption, which especially affects our PC business, we don't think we'll achieve the high end of that range and are more likely to come in closer to the low end."

During the teleconference with analysts, Fiorina discussed where the company is doing well and where it is foundering.

Printers and digital imaging products are a bright spot for the company, which is gaining market share "despite tough competitors who have identified HP as their target", she said, adding that the company expects revenue growth in the mid-teens, "its strongest level in several years".

The company's PC business is doing well in most areas, with good profits, particularly in home PCs and notebooks, and market share gains in Europe and the Asia-Pacific region, she said. HP's Pavilion line of notebook computers will move into the retail channel this week, she announced.

Unix servers also continue to do well and the company's e-services initiative, seen as key to HP's future, is "really gaining traction now", Fiorina said.

Despite the high spots, changes have been needed at HP and Fiorina said she decided to begin making them quickly so that employees won't have to anticipate what might be coming in the future and can instead focus on their jobs.

"I think we will refocus the organisation by swiftly moving to make these changes," Fiorina said.

Key among the changes is a new incentive-based compensation plan, starting on November 1, for the long-time underachieving North American sales force, she said. Underperformance of that sales team "is not news, it is a long-standing problem", and has been discussed with financial analysts, Fiorina said. Low performers are also being dismissed.

In the "new HP", Fiorina said in response to questions, "underperformance is not tolerated".

The company's e-services initiative is a point of focus which Fiorina referred to numerous times as she detailed new roles and responsibilities for the presidents of HP's four business divisions:

Ann Livermore will be responsible for e-services across the company. She will also be in charge of corporate and commercial customer areas, including corporate sales, service and support, and commercial sales. She will manage HP's top 100 accounts, all of which will be assigned a client business manager who will oversee the customer's entire portfolio. She will also be in charge of professional and financial services.

Antonio Perez will be in charge of digital imaging, a division that has continued to do well. "Our strategic intent here is to dramatically accelerate the digital transformation of photographs and other image-rich documents and bring them to HP's product platforms," Fiorina said. He also will be in charge of the company's consumer sales and support, and "the revitalisation activities associated with the HP brand".

Duane Zitzner will head computing technologies, including Unix and NT server products. He will also be in charge of storage and HP's software offerings.

Carolyn Ticknor will take over printing and imaging technologies and platforms.

Besides those changes, "we are also looking at improving the efficiency of our infrastructure across the company, where I believe there are significant opportunities for cost savings and performance improvements", Fiorina said, adding that HP is working to cut out duplication of efforts.

Fiorina's announced changes drew a mixed reaction from analysts.

"The main problem has been US sales," said Richard Chu, managing director of S.G. Cowen Securities in Boston, who endorsed her plan. "Until now, they have been reluctant to limit the low-performing head count." HP is still expected to show solid profit, despite Fiorina's warnings of slow growth, he added.

"Part of this action is her getting her feet wet," said Lou Mazzucchelli, an analyst with the investment bank Gerard Klauer Mattison & Co in New York. "Sometimes change will inject uncertainty into organisations. It's going to take a while to figure out what will happen."

HP has tough competition on several fronts, including from Xerox and other companies in the printer market, Mazzucchelli said.

In the consumer PC market, HP has had brisk sales for its flagship Pavilion Series, said Schelley Olhava, an analyst with International Data Corp.

"While the earthquake may cause [PC] prices to go up temporarily, they still have an effective strategy in place."

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