HP Announces $8B Writeoff This Quarter As Unit Fails To Meet Expectations
HP's $8B writeoff is an oddly high figure, given the performance of the business segment to date, as shown in the chart below.
Revenues and operating profits are down a bit, sure, but hardly in the doldrums. HP has stated that the new valuation "stems from the recent trading values of HP's stock, coupled with market conditions and business trends within the Services segment." Separately, the company has increased the estimated cost of its restructuring plan in Q3 from the original $1B to $1.5-$1.7B. The higher number, according to the company, is "driven by a higher than anticipated acceptance rate under its early retirement program and faster than expected implementation of the workforce reduction program."
In other words, "more people are quitting at a faster rate than we expected."
It's the latest in what seems to be a near-endless series of setbacks that've befallen HP since then-CEO Leo Apotheker announced he was considering spinning off the PC business. HP may have prevailed against Oracle in the courtroom -- a judge has ordered that Oracle's written agreement to continue supporting HP products in the wake of the Sun acquisition constitutes a binding contract -- but the company's Itanium business has already suffered. Revenue from Itanium sales has slumped in recent quarters following Oracle's allegations that HP was propping up Itanium through agreements with Intel.
For all the noise Oracle made about HP 'hurting' customers, there's zero evidence HP did anything wrong. It chose to pay Intel a huge amount of money to continue developing and improving the Itanium architecture. Oracle was perfectly happy with the arrangement, even after purchasing Sun, until Hurd was replaced with Apotheker -- a man Larry Ellison detested. Slumping sales and revenue in the profitable enterprise segments will put more of a burden on HP's consumer margins to carry the company's weight -- and those products aren't likely up to the task.