Whitman's HP Restructuring Prone to 'Autonomous' Writedowns

On Wednesday, when HP said it expects third-quarter earnings of approximately $1 a share -- compared to its prior outlook of 94 cents to 97 cents a share -- initial stock gains nearing 10% were cooled by the company's non-cash pretax charge of $8 billion for the impairment of goodwill within its enterprise services segment, highlighted by EDS. HP also replaced enterprise services head John Visentin, with Mike Nefkens, a senior vice president of the unit's in Europe, the Middle East and Africa operations.

In afternoon trading, HP shares rose by over 2% to $19.33 on its better than expected earnings guidance. Shares are still down nearly 25% year-to-date and nearly 40% in the past year.

"Though management changes will likely help drive HP's strategic vision to increase profitability in the Services segment, we believe it will likely take multiple quarters to turnaround the business segment," wrote Wells Fargo analyst Maynard Um, in a note to clients.

HP also updated the amount of the third-quarter pretax charge related to the layoffs announced in May, estimating a charge of $1.5 billion to $1.7 billion, up from its prior forecast of roughly $1 billion. The cuts equate to roughly 8% of HP's workforce by 2014, with 9,000 expected to leave this year, and is expected to save up to $3.5 billion by the end of 2014.

Whitman has had autonomy in laying out a broad restructuring plan, but it's the potential for an "autonomous" writedown on HP's transformation efforts that continues to weigh on shares.

For more on tech sector M&A and turnaround efforts, see why a BMC Software(BMC) deal is caught between a cloud boom and tech gloom.

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--Written by Antoine Gara in New York