Whitman's top job: restore HP credibility, jumpstart growth

Tue Nov 22, 2011 7:17pm EST
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By Poornima Gupta

SAN FRANCISCO (Reuters) - Hewlett Packard's new Chief Executive, Meg Whitman, passed her first test with investors, calming nerves and assuring Wall Street that the technology giant will be disciplined with its investments and focused on core operational improvements.

But she faces an uphill task in completely winning over the hearts and wallets of investors, who cut their 2012 outlook after HP posted a 91 percent drop in quarterly earnings on weak computer and printer sales.

Whitman faces the challenge of both restoring the Silicon Valley company's credibility and jump-starting growth in a weak economy.

The former eBay Inc CEO's chief priority needs to be operational execution in its key business units, including printers and PCs, analysts say. At the same time, she must rebuild HP's balance sheet, improve margins in its services unit and make good on the controversial acquisition of software maker Autonomy.

Whitman needs to "clearly focus on the business units that they have instead of lusting after software acquisitions, and show some improvement," said Morningstar analyst Michael Holt. "We want to see that the supply issue in the printing segment is resolving and that operating margin is recovering."

Specifically, the company needs to take steps to reduce channel inventory in its bread-and-better printing group, which saw revenues decline 10 percent last quarter due to weak consumer demand.

Rebuilding the balance sheet is also crucial. Following the over $11 billion Autonomy acquisition, HP now has nearly $23 billion in long-term debt, nearly 50 percent more than the previous year.

Whitman will need to show progress despite a very weak economic environment in Europe, which accounted for about 36% of HP's fourth quarter revenue, according to analysts. She also faces question on how integrate Autonomy across all its business units.   Continued...