Black ink running low

HP's services turnaround running low on ink

Hewlett-Packard’s turnaround is suddenly running low on ink. The $29-billion tech company’s PC and imaging businesses are in decline. Investors had counted on IT services to print better numbers while HP tries to fix the rest of itself. But the company now thinks the unit’s revenue will fall up to 13 per cent in the financial year ending October 2013. Chief Executive Meg Whitman’s turnaround task just got tougher.

HP has been cursed by wasteful spending on acquisitions like software firm Autonomy and underinvestment in research and development. The company now realises it needs to spend more on innovation and less on other companies. A CEO who stays put for a while would help, too. Yet while better management is necessary for a turnaround, it probably isn’t sufficient. HP has largely missed the shift to mobile computing. Revenue from PCs is being cannibalised by tablets, and mobile users print fewer documents. That’s a combination that has sent two of HP’s key businesses into a tailspin.

One hope was that HP could emulate to some degree the reinvention achieved by IBM. The former hardware giant turned itself into a technology services powerhouse. But for HP, it now look as though its information technology services business may be in decline too. Competition is tight, with the likes of Oracle, Cisco and IBM increasingly offering integrated suites of products to corporate customers, reducing the need for outside consultants to help knit various pieces of gear and software together.

On top of that, many tech titans now have consulting arms themselves. Any price war would make HP’s problems in services worse still. Rather than imitating IBM’s turnaround, the company could be stuck following Xerox or Kodak into far less comfortable, and far less profitable, territory. The HP bears had their day on Wednesday, knocking more than $4 billion off the company’s value. Whitman will need much better news to bring back the bulls but that looks in short supply.