February 22, 2011 11:42 pm

Apotheker defends HP’s strategy

Hewlett-Packard’s new chief executive officer issued a strong defence of his company’s wide-ranging strategy, as signs of weakness in some parts of its business brought an abrupt end to his four-month honeymoon at the helm.

Léo Apotheker, the former SAP executive who was brought in after the sudden departure of Mark Hurd, also on Tuesday promised urgent fixes to put HP back on track.

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However, his comments failed to prevent a 12 per cent slump in HP shares in after-market trading on Tuesday after the company reported weaker-than-expected revenues in its latest quarter.

In his first public comments about HP’s strategy, Mr Apotheker said he was strongly committed to an approach that had made HP the world’s most diversified technology conglomerate.

Speaking to the FT, he said that that would mean keeping HP’s feet firmly in both consumer and business technology markets, despite pressures on the consumer side that contributed to its latest disappointing quarterly figures.

In a sign of the challenges it has faced in competing in a wide range of tech markets, HP also said it had struggled in its IT services business. The company had seen weakness in applications services and management – two markets where competition from low-cost Indian services companies is particularly severe – and new signings of short-term services contracts had fallen short, the new CEO said.

The company reduced its revenue guidance for the current year by $2bn to reflect the pressure in the consumer PC and IT services businesses, deepening analysts’ concerns about its prospects. “What is apparent is … we have a better job to do,” Mr Apotheker said.

Mr Apotheker said his plans for HP revolved around boosting the integration of its far-flung operations, which range from PCs and printers to a wide range of business hardware, software and services. He conceded that “synergy” had become a dirty word in the business world, but said that his plans for HP revolved around “making it a clean word again”, and that he would outline his plans at an analyst meeting in three weeks’ time.

HP reported revenues of $32.3bn for the quarter that ended January 31, up 4 per cent from the previous year but below Wall Street’s forecasts of nearly $33bn. The company’s profit margins and net income were boosted by lower component costs and a strong pick-up in demand from business customers for servers, storage equipment and networking gear.

Earnings per share on the pro forma basis Wall Street uses to judge the company were $1.36, compared to analysts’ expectations of $1.29, though company executives said the benefits from lower component costs would be less pronounced in the coming quarter. Based on standard accounting principles, HP reported a 16 per cent increase in net income to $2.6bn, or $1.17 a share.

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