Hewlett-Packard Co. (NYSE: HPQ), the No. 1 computer company, reported fourth-quarter and annual results below estimates and announced an even bigger writedown than expected due to “accounting improprieties” discovered in a 2011 acquisition.
Moreover, CEO Margaret Whitman issued a dismal first-quarter forecast and warned, as she had Oct. 3, “HP is on a multi-year journey to return to profitability.”
HP didn't report a very stellar quarter. Sales of PCs fell and the company lost its No. 1 role to China's Lenovo Group (Pink> LNVGY). But HP also sold fewer servers to enterprises than expected as well. Server sales fell nearly 10 percent, compared to a much lower fall-off for rival International Business Machines Corp. (NYSE: IBM), No. 2 in the field.
The Palo Alto, Calif., company said its fourth-quarter net loss was $6.85 billion, or $3.49 a share, including the new $8.8 billion writedown of essentially the entire $10 billion cost of acquiring Autonomy of the UK in fiscal 2011. A year ago, fourth-quarter net income was $239 million, or 12 cents a share. Revenue fell 5 percent to $29.96 billion.
On operations, HP said its profit was $1.16 a share, two cents above some estimates but below many others. Revenue fell to $30 billion from $32.12 billion a year ago.
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For the year ended Oct. 31, HP reported a record loss of $12.65 billion, or $6.41 a share, compared with prior-year net income of $7.07 billion, or $3.32 a share. Some of the record charges accounts for the firing of about 14,000 employees in the year that just ended, part of a goal to trim, as many as 29,000 people by the end of fiscal 2014.
CFO Cathie Lesjak said first-quarter earnings on operations will range between 68 cents and 71 cents a share, as outlined to analysts in the Oct. 3 presentation. Full-year estimates, she said, remain for operating profit between $2.10 and $2.30 a share.
CEO Whitman said she was “astounded” by the accounting improprieties found at Autonomy, which she said had been reported to the U.S. Securities and Exchange Commission and to British authorities in the Serious Fraud Office.
“Both executives who approved the deal aren't here any more,” Whitman told analysts during an early Tuesday conference call. She referred to Leo Apotheker, who was fired in Sept. 2011, as well as the company's former head of technology, Shane Robison. The apparent fraud was discovered only in late May, when Autonomy founder Mike Lynch quit.
Whitman declined to provide many details of the alleged fraud because "it's an ongoing investigation," she said. "It will take some time." But HP is "committed to seeking redress for its shareholders" and will pursue the matter through courts and civil suits.
Autonomy had been one of the UK's top multimedia content and delivery companies, with software capable of searching vast blocs of video or music to find clips or manage huge blocks of content for online servers. HP's intention in buying the company was to buttress its capabilities in online content against IBM; Cisco Systems (Nasdaq: CSCO), the No. 1 Internet equipment provider; Apple (Nasdaq: AAPL), the most valuable technology company that manages iTunes and the iStore; Amazon.com (Nasdaq: AMZN), the top online retailer, and others.
Whitman, 56, the former CEO of eBay (Nasdaq: EBAY), the No. 1 online auction site, was brought into HP as CEO only 10 months after losing her bid as Republican nominee for governor of California. She was elected an HP director in early 2011.
Whitman said there were some good things to report: combining the PC business with HP's printers business had been a success; the company won some very large software contracts from clients including General Morors Corp. (NYSE: GM), the No. 1 automaker and some parts of the company, such as its Indigo specialty printing line, had record quarters, she said.
Although she didn't mention it, HP also reported having nearly $5 billion more in cash and investments available at the end of the fiscal year than in 2011. The new amount is $11.3 billion.
Still, "the PC business remains very challenging," she said, echoing comments last week from Dell Inc. (Nasdaq: DELL), the No. 3 PC vendor, whose CFO, Brian Gladden, made similar comments.
As well, Intel Corp. (Nasdaq: INTC), the No. 1 chipmaker and principal supplier to HP and Dell, announced Monday that CEO Paul Otellini would step down unexpectedly next year, rather than in 2016. Intel Chairman Andr Bryant said the transition from PCs to new platforms like tablets and smartphones required new leadership.
Shares of HP fell 12 percent in Tuesday trading, to close at $10.71, down $1.71, after setting a 10-year low of $11.35 earlier in the day.