Hewlett-Packard Takes EDS Hit
Hewlett-Packard chief executive Meg Whitman isn’t exactly taking a summer vacation. Instead, she’s doing some late spring-cleaning. This week, financial firm UBS very publicly argued that HP could better unlock value by spinning off the printer and PC portion of its business. If that wasn’t enough external pressure, the company just took a massive blow to its bottom line, recording a non-cash pre-tax charge of approximately $8 billion for its fiscal 2012 third quarter. The reason? An “impairment of goodwill” related to its Enterprise Services segment—much of it related to HP’s purchase of Electronic Data Systems (EDS). HP also expects to record an additional $1.5 billion to $1.7 billion charge against earnings, up from $1 billion, as early retirement plans go into effect. Nor did things look good on the data-center side of things, with HP reporting a 9.8-percent decline in server revenue. Although HP remains the largest server manufacturer in the world, with IDC estimating its factory revenue share at 29.3 percent in the first quarter, it’s been hurt by stalled demand for its x86-based ProLiant servers. HP has traditionally used its services business to complement its hardware offerings, optimizing efficiencies in the data center and elsewhere. For HP, the announcement means three things. First, the company will record a great deal of red ink when it reports third-quarter earnings. Second, real revenues will outpace expenses. And third, the Services business is severely underperforming, mostly due to the ripple effects of the EDS acquisition.