Saturday, August 24, 2013

HP comparisons 1Q 2012 thru 3Q 2013

So what really is going at HP that we might glean from "the numbers"?

The following two charts plot the revenue trends and the profit trends for the five major groups of the company (actually four major groups plus 'dinky' software).  The reason to include software (for which HP has historically been allergic, as I learned painfully for years trying to run SW divisions for them) is that the $1B software business, less than one fifth of any other business line, produces as many profit dollars as two of the 'big four'.  So, one wonders, WHAT IF THEY DID SW RIGHT?

First, the Revenue lines

Examining these lines is revealing.  PCS over seven quarters are "only" down 13.37%, a Compound Average Shrink Rate of 8.75% per year.  Printers, Enterprise Hardware, and Services all are vying for the next level, shrinking respectively 4.8, 4.5, and 5.4% annually.  Software has grown 2.5% per year.

So essentially for top line revenue growth, nothing has positive momentum.  Gag!  What the hell is wrong with innovation at this once-proud company?

The profit lines are shown in the next graph
Now, we can see some interesting things

In absolute terms, in six quarters PCs and ENT HW have lost $527Million in profit contribution while Printers, SW, and Services have added $231Million.   Who's gone from Meg's staff in the past two months?  PC and ENT HW VPs.  Bradley and Donatelli.  Is there correlation?

On the other hand, Shane Robison is gone too, the architect of the SW group.  But here the revenue line tells us something as well.  Software, with its healthy margins, has grown a mere $34Million on virtually a $1Billion base, or less than 3% per year -- no different than it was for years.  The secret here seemed to be to buy a SW company, have it turn out like Palm with WebOS or Autonomy with its flawed Business Analytics capability, and hope for the best.   In other words, strategically this line has been beyond disappointing, never mind the tactics.

The CAGR or CASR numbers here are bigger than their revenue equivalents.  Only PCs and Enterprise HW have CASR rates, at 31.2 and 14.4% per annum rates.  So a way to phrase the siuation for each of these two groups -- the groups that have just gotten new leadership -- is that for the past six quarters, they have been losing money three times faster than they are losing revenue.  On the other hand, two groups shrinking as fast as these in revenues actually have GROWN their profits, presumably by careful management (although every R and D person knows you can improve short-term results by canceling your future and not spending on R and D at the moment).  So, services and printers, whiole shrinking revenue by 5% per year, have grown profits by 21% and 13% per year respectively.  Similarly, software has grown profits by 15% per year, with only 2.5% revenue growth.

Puts a different slant on Donatelli's April interview when he defended low R and D expenditures, and said he was gratuitously grabbing HP Labs' contributions, doesn't it?

Stay tuned?

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