Hewlett-Packard Co Earnings Call Nuggets: Execution Specifics and Management Changes

Hewlett-Packard Co (NYSE:HPQ) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

Execution Specifics

Mark Moskowitz – JP Morgan: Meg, the first question is for you. I was curious regarding this commentary around execution. Can you give us little more specifics particularly in context with today’s management changes, how much is driven by technology deficiencies versus go-to-market or both? And I just want to see how we should think about that trajectory, if there’s a lot R&D required going forward? And then I have a follow-up for Cathie if I could, around the Services business. I hear you on the revenue decline not being as bad as expected at last October’s Analyst Meeting, but how should we think about some of the services slippage going forward as these extensions with some of these four exceptional services customers unwind? Would there be any sort of operating margin hit down the road that we should be prepared for?

Meg Whitman – President and CEO: Well, let me take the first one. So, we were disappointed, as I said, in EG’s performance this quarter, and there are couple of issues. I think this is less technology than it is a number of other areas. First is, we’ve got to have the right products targeted to the market segments that we choose to go after with the right cost structure, and we’ve got some more work to do on having a competitive cost structure around supply chain as well as our manufacturing strategy. We also have got to simplify and make more effective our selling motion. This is a very big, very complicated sales motion, and frankly, we’ve got to simplify it. And then we’ve got to see our channel programs that we put in place earlier this year and some changes to the partner compensation program in August have got to work. And actually, there are some bright spots there, but my view is we’ve got some operational excellence work that needs to be done here. So, I actually am quite confident in our technology, I’m confident in our next-generation blade, in Moonshot. I think we can turn the corner on this, but we have a bit more work to do.

Cathie Lesjak – EVP and CFO: Also on the Services business question in terms of the slippage, so I’m not sure we’d call it slippage, that sounds unplanned in some ways. We’ve been working closely with these top four accounts, and at least one of them is completely done, but the three that remained, and we’re working very methodically to make sure that their transition works well. And frankly, that gives us time to come in into a couple of things; A, get our cost structure in line for now the new run rate business, but also it’s enabling us a chance to come in and sell a bit more on a sell-and-bill basis within the quarter. And we saw that this quarter. So this quarter if we had just had the run-off from these exceptional accounts, and we hadn’t been able to bring in some additional revenue, then the reduction in revenue would have been much better – much lower. And so – sorry, much higher and much worse. And so, I think that that’s giving us time. So I think actually letting these things take a little bit longer to transition has been good for us.

Management Changes

Toni Sacconaghi, Jr. – Sanford Bernstein: Meg, I was wondering if you could comment a little more on the management changes. In the last two months, you’ve changed leadership of business units that comprise more than 80% of your profits. So, you outlined some of the things that you were dissatisfied with. Perhaps you can comment on what are the specific marching orders to the new executives. Can you also comment on why you’re not looking to attract talent from the outside? I think in your press release, you said the imperative is to rapidly respond with fresh ideas and bold execution. Fresh ideas often come from the outside and all the management changes that have occurred recently have included promotion solely from within. So, marching orders and then recruiting outside talent; and then, I have a separate follow-up please.

Meg Whitman – President and CEO: Okay, good. So this, as I’ve said for a long time is a five-year turnaround with appropriate milestones along the way. But we’re entering the next phase of the turnaround; and my view is, we need to accelerate into the next turn. And my job is to get the right people in the right job at the right time with the right experience and domain expertize. As I evaluate the performance of each of these businesses, what I think is necessary, then I’ve got to match the right executive to the challenge at the time. I’m excited about the makeup of this new team. You’re right, Tony; I have relied more on promote-from-within because we’ve got a lot of very talented executives in the Company who have been in second or third level jobs, who are more than capable of stepping up in the case of Dion Weisler the results in APJ for our PPS are really quite good. And it takes a long time to learn how HP does things and understand the business. In the case of Bill Veghte, he had been our Chief Operating Officer, had helped plot the blueprint for the future and bring a tremendous amount of software expertise to a business that is relying more on software to differentiate the hardware than the bare metal. Also has tremendous expertise in selling, ran Microsoft, North America and one of our big weaknesses here is our selling motion in our sales go-to-market. So it’s always a balance. I have brought some new people in from the outside, but you’re right, I tend to want to go with people who I think have the fresh ideas and the energy and the enthusiasm but also don’t have to start at the beginning of the learning curve.

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