Hewlett-Packard Earnings Call Insights: Autonomy Scandal and Restructuring Savings

On Tuesday, Hewlett-Packard Co (NYSE:HPQ) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Autonomy Scandal

Benjamin Reitzes – Barclays: Meg, with regard to the Autonomy situation, we understand what you are doing in terms of going after the folks that you feel mislead you, but what about internally, who is responsible internally for the acquisition? How are you analyzing yourself internally at the Board? I think everybody at the Board was there when the Autonomy decision was made except for Mr. Whitworth. So what’s the introspective – what are you doing internally to make sure that you have the right processes and who you’re holding accountable internally if anyone to make sure this doesn’t happen again and that maybe even there is some folks internally that need to held responsible and we could see repercussions of this in the near future? How are you looking at it internally?

Meg Whitman – President and CEO: Well, first of all, the CEO at the time and the Head of Strategy, who led this deal are both gone, Leo Apotheker and Shane Robison. With regard to the Board, you’re right. Most of the Board was here and voted for this deal, and we feel terribly about that. What I will say is the Board relied on audited financials, audited by Deloitte, not (Brand X) accounting firm but Deloitte and by the way, during our very extensive due diligence process, we hired KPMG to audit Deloitte. Neither of them saw what we now see after someone came forward to point us in the right direction. That said, obviously, we have not done any big acquisitions and we will review the acquisition process. What I will say is due diligence now reports to our Chief financial Officer. At the time when I came to the Company, I was surprised to find that due diligence and M&A reported to Strategy as opposed to the Chief financial Officer. I have never seen that before in my career and that’s a decision I made right away before I knew any of this. So I understand your point of view and we have made a few changes in that regard, but in the end you have to rely on audited financials and we did and we will now carry on and as you know, we have reported this to the SEC as well as the Serious Fraud office and we will take it from here.

Benjamin Reitzes – Barclays: In terms of internal personnel though, based on what you see right now, the organization is – can remain stable based on this occurrence?

Meg Whitman – President and CEO: Yeah, it can. I mean, really the two people that should have been held responsible are gone and that’s the way I see it right now. So I feel good about sort of the stability of leadership.

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Restructuring Savings

Bill Shope – Goldman Sachs: Can you give us a bit more color on what levels of restructuring savings you are able to capture this quarter and in particular, which segments did the savings benefit most as I imagine you didn’t have much ability to reinvest yet? How should we think about the reinvestment plans in particular as we go into the first quarter and then as we get through fiscal 2013?

Cathie Lesjak – EVP and CFO: So in terms of kind of which businesses benefited most, I think all of our businesses benefited to some extent in fiscal ’12 from the restructuring efforts. Clearly, services, that is, such a – has a heavy component to labor to it probably had the absolute dollar biggest savings from the restructuring efforts. In terms of kind of the total magnitude, I think we laid it out in our earnings call last quarter. We, basically, talked about kind of $0.05 to $0.10 worth of savings in fiscal ’12.

Meg Whitman – President and CEO: I’d add one thing to that. I think one thing we’ve been very pleased with is the merger, if you will, between our Printing business and Personal Systems Group. This has simplified our go-to market. We now have one decision-maker in many countries for both our Printing and our PC business. The customers are the same, the channel partners are the same and we’ve seen a lot of savings in a lot more effective go-to market here and we continue to see that go forward. In terms of investments, we are very focused on products, products, products. Great companies, return to greatness on the basis of product and we’re excited about our overall product lineup whether that be our Gen8 servers and Moonshot servers or new securities portfolio or a new line of PCs or printers or services. So the majority of incremental investment will go into making those products great and into R&D.

Cathie Lesjak – EVP and CFO: Then the other piece of the investment is really setting us out for some of the non-labor savings that I laid out in my prepared remarks around on SKU reduction, business process reengineering, real estate and supply chain. So some of that is more in investment mode at the early part of fiscal ’13, but does ramp in the latter half of ‘13.

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