Hewlett Packard's Whitman May Write Off Transformation

Updated to reflect additional analyst commentary and closing share prices.

NEW YORK (TheStreet) -- After Hewlett-Packard's(HPQ) record $8.9 billion third quarter loss was colored by an $8 billion write-off of the company's 2008 acquisition of IT services giant EDS, losses may just be beginning as HP CEO Meg Whitman struggles to execute an IBM(IBM) -like transition from PC manufacturing to software and IT services.

Notably, HP's mixed third quarter earnings marked the one-year anniversary of an effort unveiled by former CEO Leo Apotheker to cut and run from declining computer sales and push into software and IT services. The effort was marked by an $11 billion-plus acquisition of British software giant Autonomy.

In a series of decisive moves after Apotheker's ouster shortly following the deal, new CEO Meg Whitman stuck with HP's PC division and the company moved forward on its Autonomy acquisition.

Now, in spite of Whitman's decisiveness in outlining a strategy for HP, Autonomy's third quarter earnings underperformance, in addition to falling services based revenue, gives HP investors little reason to believe a turnaround is imminent as personal computer sales tumble.

In fact, after a massive non-cash third quarter writeoff of its $13 billion-plus acquisition of business services and hardware giant EDS -- a key to the company's IT services push -- Autonomy, the software and big data analytics leg of HP's transition strategy, may be the next writeoff.

HP management noted on the third quarter earnings call that they may write off more goodwill in the fourth quarter and highlighted that software was their main area of remaining goodwill after writing off over $9 billion in services in the latest results.

"After Autonomy's poor performance the last couple quarters, we suspect that goodwill associated with Autonomy will constitute part of the write-off," wrote Jefferies analyst Peter Misek, in a note to clients reacting to earnings. "We believe the negative headlines generated by this could weigh on the stock," he added.

Previously, Misek highlighted Autonomy as a key lever of HP's prospective earnings and stock rebound in coming quarters. CEO Whitman continues to highlight that her turnaround efforts will be focused on salvaging the strategy market by last August's $11 billion-plus Autonomy acquisition.