Has HP bottled it?

August 22nd was a traumatic day for HP for two reasons:

1) It just had a quarter that makes the Boston Red Sox* look good, taking an $8.9bn loss, fuelled by a massive write-down from its 2008 EDS acquisition and a couple of billion in severance costs from its recent layoff.

2) It cancelled its September global analyst summit.  We haven’t seen this type of thing happen since the days of the dotcom bust.  A major tech services provider wimping out from facing the analysts at the last-minute?

OK – so the financials were immensely horrible.  Having to admit to its shareholders that it paid an obscenely high price for EDS, combined with managing the integration so poorly it’s barely worth a quarter of what it paid for it in today’s market is a bitter pill to swallow. But hey – we’re a forgiving world, right?  We love a comeback story, right?  Can’t HP become the Bill Clinton of the services business?  Didn’t John Travolta resurrect his acting career quite well after Two of a Kind?

Instead, someone in HP has made the decision to run and hide – to cancel their September analyst event, where we had already planned our pub crawls with our friends flying over from Europe, where we were prepared to open our hearts to Meg to find some semblance of hope for the future of the firm.

We know HP is in trouble, now we want to know the recovery plan

As someone told me yesterday, “Meg has to focus on nothing but cost-cutting over the next couple of years”.  Well, we know that is the case, but surely there is a growth plan in there somewhere too?  Surely HP can share where it sees its future and how it plans to lead the market once again?  There was a $2bn profit in those results once you took away all the write-downs….

Sadly, refusing the face the world and communicate the growth plan only fills us with even more dread for the future of the firm.  It sends the wrong message.  We made the point, with the recent layoffs, that Meg Whitman is doing what she was hired to do – straighten the ship, re-energize the management talent and getting HP on a roadmap to competitiveness.  We know HP needs to gets its financial ship in order, so there’s not a lot else to hide, is there?  Is confidence with the leadership now so low, that it can no longer take a few pots shots from the analyst peanut-gallery?

What concerns me now is the speed of the needed change HP has to go through here. When IBM hit trouble in the early ’90s, it laid off a (then unprecedented) 60,000 employees, which started its recovery process (around 100,000 employees were let go in total that year – about a quarter of its workforce).  HP’s recent restructuring surgery has likely used too blunt a knife to make the sweeping changes it needs, to gets its act together – barely 8% let go at $1.8bn in costs?  Doesn’t sound like the sweeping changes it needed to right the ship…

The Bottom-line:  Hiding from the analyst community only sends a negative message to the world

Clearly, Meg is realizing she has to perform a lot more aggressive surgery than this to right the ship.  However, shying away from the global analyst community sends the wrong message.  HP has a lot of positives to sell us – I sat through an interaction discussion this week with one of its BPO leaders and there is still a great customer-centric culture, a solid market footprint and some glimmers of hope for future client wins.  We talk to HP customers all the time and their main concern is the direction the firm is taking – not the current performance managing their day-to-day IT and business services needs.

Meg – you need to face the world and share your ambitions.  Hiding under the covers only fills us with fear for the firm and all it stands for…

The picture above is taken from a famous British advertising campaign for ”HP Sauce” which is actually a very popular “brown” sauce in Britain (tastes a bit like Worcestershire sauce).  The campaign that depicts how how awful life would “without HP”

*Readers from the United Kingdom can substitute said analogy with “Liverpool FC”.

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8 Comments

  1. Posted August 23, 2012 at 10:09 am | Permalink

    Not sure I agree with you on this one Phil. There is that maxim about cutting your losses, preferably altogether. HP seems to be in serious clean up mode, think of it as a cold boot, and that is probably exactly what they need to do. They are in the midst of dealing with plenty of HR logistics, which potentially have legal ramifications. They are likely considering unloading some BUs or parts of BUs, and of course can’t discuss that. Time to go into a shell, figure out what you want to look like on the other side of restructuring, and then step through all the difficult execution tasks. Seems reasonable. The services piece is just one of many pieces on a chessboard where HP needs to carefully reconstruct a potential winning position.

    Funny, SAP nixed their influencer summit, and there were undoubtedly a few complaints, but they have all kinds other events for analysts to partake in. HP is still out there for analysts to work with too. Not sure spending that concentrated time with services analysts, some of whom get a kick out of making them feel even more uncomfortable, would really prove helpful right now. As we are saying in Red Sox Nation right now, wait ’til next year, oh, and dump Bobby before then would ya? I saw the Sox play v the As about a month ago, and Sox were going through the motions, no swagger, no verve, no emotion, made me shiver.

  2. Adrian Bowles
    Posted August 23, 2012 at 10:16 am | Permalink

    Spot on commentary, and the picture of HP sauce makes another (perhaps inadvertent) point. I grew up using HP sauce on a wide variety of foods. Whatever it was, HP sauce made it better. It was a reliable complement to all things culinary. Several years ago, HP quietly changed the recipe. The bottles look the same, they even say “original” but it’s a lie.

    HP (the Hewlett Packard variety) used to represent innovation and quality (I’m still using an HP 12C that I purchased in 1982). The logo hasn’t changed recently, but I have no idea what’s behind it today. Canceling the analyst event sends the wrong message. Actually, I hope it’s the wrong message.

  3. Anon analyst
    Posted August 23, 2012 at 12:41 pm | Permalink

    Bravo Phil for putting out this gutsy blog. While HP clearly are worried about having a conference at this difficult time for them, canceling so close to the time sends out an even more worrying message to industry.

    What’s left to hide? Why not use the opportunity to share some ideas, collect views and opinions, make some friends?

    I notice they still persist with their commercials and other marketing.

  4. Phil Fersht
    Posted August 23, 2012 at 12:49 pm | Permalink

    @EQ – Normally I would agree with you, but canceling this close to the event is disastrous.

    What is left to hide? Most analysts assume they are going through internal turmoil and in mid-restructuring mode, so why not use the opportunity to share what HP is all about – a reminder of their products, services and DNA?

    Why not make some friends? Have us meet their leaders? Share the long-game and take our minds off of the short….

    Canceling at this late stage is a lose-lose and sends a poor message to industry

    btw – “no comment” on SAP’s “influencer” events ;)

  5. Posted August 23, 2012 at 1:33 pm | Permalink

    Agree with EQ. Don’t agree with this article. Tough time require difficult and not-pretty decisions. Taking analysts and flying them from Europe at the end pays nothing to the business.

    I guess is better to act now rather than later. If this ship is not saved now, there won’t be any fancy analyst reunions paid by HP in the future…… for ever !!!

  6. Larry Walker
    Posted August 23, 2012 at 1:43 pm | Permalink

    There seems to be a common consensus that HP over-paid for EDS and that ITO & BPO business is dragging HP down. This sadly misses the fact that EDS was once one of America’s most admired companies, and was positioned squarely in the middle of a business that is still robust and growing — albeit substantially more competitive. (http://www.zdnet.com/does-hps-quarterly-loss-show-the-strength-and-variety-of-the-datacenter-market-7000003073/) It’s a drag on HP because HP doesn’t know how to run it & refuses to empower anyone who does.

    EDS’ inept board and incompetent leaders ran the ship aground before selling it to HP. But then HP did nothing to capture the synergy value of the acquisition or apply any of the HP ‘secret sauce’ to that business. Rather than write it off, has Meg Whitman considered spinning it off? There are a number of the legacy (no pun intended) EDS leaders who could most likely put together a deal to take that business of Meg’s hands – thus giving the HP shareholders something substantially better than a multi-billion dollar write off.

    Finally, the premise that IBM’s massive layoffs were what restored its fortunes is ludicrous. No company has ever been able to slash and burn its way to greatness. If the army was losing a war, the solution would NOT be to get rid of all the soldiers. It never has been and never will be. Let us be careful not to give credibility to the lame thinking that big business CEO’s have of slashing costs to create and/or recovery shareholder value.

  7. John Travolta
    Posted August 24, 2012 at 8:15 am | Permalink

    Brilliant post, Phil – one of your finest :)

    While HP has the right to do whatever it likes with industry communications, they clearly bottled it here!

  8. exec about to leave
    Posted August 24, 2012 at 10:18 am | Permalink

    HP’s problems have been and continue to be truly top down – starting with a very screwed up board of directors. Until this is fixed the ship will continue to circle the drain. Add to that the people lined up for succession (donateli and, Bradley) and they are in big trouble.

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