Whitman's HP Restructuring Prone to 'Autonomous' Writedowns
"Autonomy had a very disappointing license revenue quarter with a significant decline year-over-year resulting in a shortfall to our expectations," said Whitman on HP's earnings call in May. Still, Whitman was optimistic about Autonomy, highlighting its cloud offerings, which had a "flood" of large sale leads and is expected to scale against HP's much larger existing operations.
Overall, HP's software license growth fell to 7% in the second quarter from 12% in the first, while the unit's operating margins dropped to 17.7% from nearly 20%. "When you try to go from $40 million to $400 million to $1 billion to $2 billion, boy it takes -- it's a whole different ball game," Whitman said in May of the unit's weak Autonomy's-based results and its importance.
When HP first took control of Autonomy it planned to run the company independently, keeping Lynch, who founded the firm in 1996, at the helm. The drastic management change for Autonomy, a maker of software analytics that search unstructured data like emails, phone calls and social media, was a troubling sign for investors worried about whether HP will get a bang for its buck on the acquisition.
Under new Autonomy head Veghte, HP will try to better tie the software specialist to the company's existing services, server storage, networking businesses and its sales force, in an "organizational structure to support a $1 billion company," according to Whitman.
Whitman's closer alignment of Autonomy with core HP, and an overall restructuring and simplification of HP mirrors the decade-ago turnaround of IBM that took shape through a strategy to quickly integrate acquisitions.
The question is whether HP will ever attain success in its transformation efforts, as doubters mount.
On Tuesday, UBS analyst Steven Milunovich said HP has so far assembled a mediocre set of assets that's unlikely to pull business from entrenched enterprise players IBM and EMC(EMC) .
"HP lacks the pure enterprise focus of IBM and EMC yet will have trouble competing for consumers without strong tablet and phone businesses like Apple and Samsung," wrote Milunovich in an initiation of HP shares with a sell rating and a $16 price target.
"We question whether HP is 'better together' and that it might be 'smart to be apart,' specifically spinning off printers and PCs," he added.