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HP’s future uncertain as Whitman fails to woo Wall Street

If the PC industry as a whole is having a tough time managing the transition to the post-PC era, HP has it tougher than most.

Investors hammered the company's shares yesterday after CEO Meg Whitman warned revenues would fall even more steeply than expected through 2013. She had been speaking to Wall Street analysts, hoping to shed light on the company's turnaround plans. Things didn't go as planned: the stock price fell over 15% in overnight and early morning trading, to under $15, and has now lost two-thirds of its value over the last two years.

As the world's largest PC vendor, HP has the most to lose as surging smartphone and tablet sales dig ever deeper into its traditional businesses. Not only is Lenovo breathing down its next for the #1 slot, but its individual business units — in PCs as well as enterprise services — continue to struggle with slackening growth, thinning margins and a growing perception that HP won't be able to successfully navigate the generational shift into mobility. As observers fret over its near-term future, HP's recent past echoes a worrisome track record of dubious performance:

  • Leadership. Whitman is HP's third CEO in as many years, following the abrupt departures of Mark Hurd and Leo Apotheker. She specifically cited executive turnover as one of the factors responsible for the longer-than-expected recovery.

  • Palm. The company's botched takeover — and subsequent shutdown — of the one-time handheld device darling diverted its attention away from mobility just as the market was taking off. Whitman recently reaffirmed HP's commitment to introducing mobile products, but the resulting delay puts the company well behind already-entrenched competitors like Apple and Google.

  • Layoffs. In May, Whitman announced a plan to reduce headcount by 27,000, or 8%. Last month HP bumped that figure to 29,000, a number that could climb higher before the turnaround plan takes effect.

  • PC/partnerships. HP isn't being helped by continued turmoil in its partnership ecosystem. Intel's Ultrabook initiative, which helped hardware vendors develop sleek new laptops to rival high-end offerings from Apple, isn't resonating with consumers. Sales have lagged through much of the year as consumers wait for new machines based on Windows 8. With the October 26th launch looming, Intel last week confirmed it's having difficulty with the software design for one of its key processors, which could affect availability through the holiday shopping season.

While Whitman is best known for growing eBay into an $8 billion online auction and shopping powerhouse before leaving in 2008, she's also attracted unwanted attention for her unsuccessful — and most expensive-ever personally funded — campaign for California governor in 2010. She was also sued by a former employee, Young Mi Kim, over an alleged 2007 shoving incident. The case was later settled.

In her first year at HP's helm, Whitman has largely succeeded in putting these controversies behind her and establishing a more focused and engaged leadership style. But on the broader — and arguably more critical — plain of baselining HP's future, she has failed to move the needle for investors. The turnaround plan, announced at the same time as the first wave of 27,000 layoffs in May, ran through the end of 2014. Whitman this week said continued weakness in HP's core business units could push parts of that timeline into 2016.

Whitman may indeed be the right leader at the right time for the embattled giant. But investors may not be willing to endure another four years of turmoil before HP returns to its former self. Short of further wholesale change to the fundamental structure of the company, Whitman may not be around by the time the changes she's initiating now begin to take effect.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca

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