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HP CEO: Focus for 2006 on growth, efficiency

HP CEO: Focus for 2006 on growth, efficiency

HP's main focus as the company heads into 2006 will be on growing its operations and making all segments of its hardware, software and services business more efficient. HP is strong in developing innovative technology, but has tripped up in its sales efforts due to overly complicated internal reporting structures, according to the head of the company.

HP customers have found the company "really tough to do business with," HP president and chief executive officer, Mark Hurd, told attendees at the vendor's securities analyst meeting last week.

HP sales people were often slow to get back to customers because the company's reporting structure was complex meaning decision making took time, according to Hurd. "We're going to push more accountability and responsibility down deeper into the sales force," he said on the webcast. "We'll take every piece of complexity off [sales] people's backs so they can increase their selling time."

When he came on board HP in March, Hurd saw a company with "a mixed report card," he said. "Not everything was good, nor was everything bad."

On the plus side were HP's technology expertise, a strong balance sheet and a mostly motivated staff, he said. Contrary to popular belief, HP was awash in information about its operations and its customers, but that data wasn't well consolidated, according to Hurd.

The aim for HP as the company restructures is to lower its costs by several major consolidation efforts around its IT infrastructure. The company will work to cut the number of its data centres as well as merge its data marts into a single enterprise-wide data warehouse, Hurd said. HP also currently has more than 100 IT sites spread across 53 countries. Hurd's aim is to reduce that number to around 25 core IT sites. He also hopes to more than halve the number of active IT projects HP is working on from 1240 to about 500 projects, Hurd added.

In July, Hurd embarked on a major restructuring effort at HP involving laying off 15,300 staff with resulting annual savings estimated at $US1.9 billion. The best way to look at that effort is as the start of an ongoing process to decrease costs at HP, not as a one-time action, he said.

Hurd intends to grow HP's business by leveraging the company's existing product portfolio and entering into new and adjacent markets through the internal technology development or in partnership with a third party or via acquisition. In terms of acquisitions, the company will stick to the same kind of smaller, more focused purchases it has made this year, he said.

The aim behind everything the company does going forward is "to establish HP as the world's leading IT company," Hurd said. "We've got a lot to do to get the company where we want it to be," he said. Hurd estimated that HP sold more than 50 million printers, 30 million PCs and more than 2 million industry-standard servers in 2005.

Hurd stressed the importance of HP's PC business. "I believe the PC business brings leverage to HP," he said. He defined that leverage in terms of customers who want to buy all their IT hardware from the company including desktops, the ability for HP to partner with more third parties and to provide flexibility in HP's supply chain.

He also talked up two other areas of the company's business. "Software and storage are both integral parts of what we want to do going forward," Hurd said.

Executive vice-president of HP's personal systems group, which includes the company's PC business, Todd Bradley, said HP was hard at work determining what its HP and Compaq brands stand for. HP acquired Compaq in 2002 and still uses the Compaq brand for some of its products. "In our fall cycle [of products in 2006], you'll see more delineation of the brands," he said.

Bradley also hinted that HP is looking again at the digital music arena. In July, HP announced it would stop selling Apple Computer's iPod music player. HP is still dealing with the remnants of the relationship with Apple and is under obligation to install Apple's iTunes software on its PCs until January, he said. "We will talk more about our music strategy later in 2006," Bradley added.

HP was fairly pleased with its fourth-quarter and fiscal 2005 financial results released last month, according to CEO, Bob Wayman. "We had a much better balance in profitability," he said on the webcast. "We exited 2005 in good shape with a strong cash balance." HP generated $US8 billion in cash flow across its operations during fiscal 2005. However, Hurd was quick to point out that HP won't be resting on any laurels. "We've got a lot of stuff to go work on," he said. "Q4 was not an ultimate victory for the company in any shape or form."

Looking ahead to fiscal 2006, for the full year, Wayman predicted revenue in the range of $89.5 billion to $91.0 billion. On a non-GAAP (generally accepted accounting principles) basis, he's forecasting earnings per share (EPS) for fiscal 2006 of $1.88 to $1.95 pre stock-based compensation and an EPS of $1.75 to $1.82 post stock-based compensation. Both EPS estimates exclude after-tax costs of around $0.14 per share related to the amortization of purchased intangible assets, Wayman noted.

Hurd concluded the analyst event on a bullish note. "You may not always like what we say, but we'll do what we say," he said. "We'll work extremely hard to deliver on commitments we make [both within the company and outside of it."


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