by Robert Palmer | 5/28/15
On May 21, HP announced its Q2 fiscal 2015 financial results. Reaction was mixed on news that HP outperformed earnings projections but fell short of revenue targets. For the quarter, net revenue declined 7 percent to $25.5 billion, compared with $27.3 billion in Q2 2014, and was down 2 percent on a constant currency basis. The results reflect revenue declines in 11 of the past 12 reporting quarters for HP. Although HP surpassed earnings projections, non-GAAP earnings fell to 1.6 billion, compared with $1.69 billion in the year-ago quarter.
Personal Systems revenue declined 5 percent year-over-year. Commercial revenue in the segment decreased 7 percent and Consumer revenue fell 2 percent. Total units were up 2 percent with Notebook units up 19 percent and Desktops units down 14 percent.
Enterprise Group revenue was down 1 percent year-over-year with a 14.5 percent operating margin. Server revenue rose 11 percent but was offset by an 8 percent decline in Storage revenue. Revenue from HP’s Enterprise Services unit, which is a crucial part of the firm’s long-term strategy was down 16 percent year-over-year with a 4 percent operating margin. Infrastructure Technology Outsourcing revenue declined 20 percent, and Application and Business Services revenue also dipped 8 percent.
In the Printing segment, total revenue declined 7 percent to $5.5 billion. Total hardware units were down 4 percent with Commercial hardware units up 1 percent and Consumer hardware units down 6 percent. Supplies revenue also declined 5 percent compared with the year-ago period.
HP also used its Q2 earnings announcement to provide an update on its planned separation into two independent businesses: one consisting of HP’s PC and Printing businesses and the other comprised of its Enterprise Services business. According to HP, the separation remains on track but it now expects associated dis-synergies costs of approximately $400 to $450 million. The dis-synergies add to a $1 billion one-time charge associated with the separation and an additional $2 billion in restructuring costs for the Enterprise Services group. Details on the planned restructuring were not provided but most assume that additional layoffs will be coming.
HP also announced new future leadership appointments for both companies: Cathie Lesjak will become Chief Financial Officer of HP Inc., which is the new moniker for the firm’s PC and Printing business. Tim Stonesifer will become CFO of Hewlett Packard Enterprise. Stonesifer currently serves as CFO of HP's Enterprise Group. Chris Hsu has been selected to become Chief Operating Officer at Hewlett Packard Enterprise.
For her part, HP chairman, president and chief executive officer Meg Whitman was upbeat in review of the firm’s Q2 performance and future outlook. "I'm pleased with where we ended the quarter, the continued success of our turnaround, and the progress we're making on separation," she said. "Despite some tough challenges, we executed well across many parts of our portfolio, sustained our commitment to innovation, and delivered the results we said we would.”
For more on HP’s latest earnings announcement, see press release here.
HP’s struggles can be tied to a variety of factors. Like many of its competitors, HP is dealing with challenging economic conditions compounded by currency fluctuations in regions outside the U.S. The firm points out that more than 65 percent of its revenue comes from outside the United States and more than half of that in EMEA, noting as a result that it is disproportionately impacted by currency movements versus its competitors.
Meanwhile, HP’s printing business experienced another difficult quarter, reflected by a decline in overall revenue of 7 percent. Slight growth in commercial hardware unit sales is not enough to drive real hardware revenue growth, and likely not even enough to offset continued declines in the consumer segment. Meanwhile, supplies sales, which accounts for 68 percent of HP’s total printing revenue, continues to decline. The recent announcement of HP’s JetIntelligence technology is designed to help the firm shore up its supplies business but it will take time for that rollout to have an impact — and it is hard to say how deeply that impact will be felt. (For more on HP’s JetIntelligence technology, see story here.)
Robert Palmer is chief analyst and a managing partner for BPO Media, which publishes The Imaging Channel and Workflow magazines. He is an independent market analyst and industry consultant with more than 25 years experience in the printing industry covering technology and business sectors for prominent market research firms such as Lyra Research and InfoTrends. In December 2012 he formed Palmer Consulting as an independent consultancy focused on transformation, mobility, MPS, and the entire imaging market. Palmer is a popular speaker and presents regularly at industry conferences and trade events in the U.S., Europe, and Japan. He is also active in a variety of imaging industry forums and currently serves on the board of directors for the Managed Print Services Association (MPSA). Contact him at firstname.lastname@example.org.