Hewlett-Packard Co. (NYSE:HPQ) CEO Meg Whitman quashed recent speculation the company would be ripped up to restore profitability. “We have no plans to break up the company,” she said after HP announced unexpectedly strong first-quarter results on Thursday.
Since Whitman, 56, took over at the Palo Alto, Calif., computer giant in September 2011, investors have speculated she might split up HP, especially after predecessors acquired Compaq Computer Co., Electronic Data Systems and Autonomy Plc.
Instead, Whitman decided immediately to keep the PC line, which helps to keep HP narrowly ahead of China's Lenovo Group (PINK:LNVGY) as the world's top PC maker, and merged the line with the company’s printers division. Last year, she wrote off more than $18 billion in goodwill and acquisition charges, then mounted a two-year restructuring campaign to return HP to profitable growth.
The divestiture speculation gained ground in late December, when the company said it would consider asset divestitures, as part of a routine filing with the Securities and Exchange Commission.
"I think we’ve put together the most valuable franchise in IT, particularly as we look forward to the most significant change,” Whitman told investors. “I mean over time, the business performance has to underscore the value of better together.”
On Thursday, she said the company's assets, ranging from laptops to its first supercomputer, dubbed Moonshot, should allow it to serve current customers as well as handle the transition to mobile platforms. The company re-entered the tablet market last month with two products, including the HP 900 ElitePad, which are aimed at professionals rather than consumers.
For the quarter ended Jan. 31, HP reported operating earnings of 82 cents a share, compared with analyst estimates of 71 cents a share. Net income slipped 16 percent, to $1.2 billion, or 63 cents a share, from $1.5 billion, or 73 cents, a year earlier. Revenue fell 6 percent, to $28.4 billion, compared with estimates of $27.76 billion carried by Thomson Reuters.
Despite lower sales across all of HP’s principal categories, the company said that total costs and expenses fell nearly $1.4 billion, which is part of Whitman’s effort to streamline operations and trim the workforce about 10 percent by mid-2014. Indeed, Whitman said 16,300 employees have been terminated, slightly more than the 14,000 originally planned in May. HP had about 331,800 employees worldwide as of Oct. 31, 2012, its annual report said.
As a result of the company's initiatives, Whitman and Chief Financial Officer Cathie Lesjak, citing continued cost savings and share buybacks, predicted second-quarter operating earnings of between 80 cents and 82 cents a share, a nickel ahead of estimates.
That robust outlook helped to send HP shares up 16 percent, to $19.83 on Friday, before easing to $19.52, up $2.42 in late trading, for a 37 percent gain since Jan. 2.
UBS analyst Steven Milunovich, who’d long advocated an HP breakup, upgraded the company's rating to neutral from sell. Milunovich said that while he wasn't impressed with HP's overall performance, especially because of lower sales, the company might be able to pull off a turnaround.
His price target for a year from now is $19, up from his earlier prediction of $12.