Diesel

NIVESHAK 27
Cover Classroom Finsight Story
investors would receive a tax free distribution
of shares in the new company.
This move marks a reversal for Meg Whitman, the
former eBay boss who was roped in three years
ago to turnaround the then ailing technology
conglomerate. One of her first acts was to ditch
the plan to shed the PC division laid out by her
predecessor, Léo Apotheker, though she has
since then left the option open for more radical
actions to deal with HP’s problems.
With growth stuttering in the last few years
post the merger of HP with the then noted PC
manufacturer, Compaq, and the onslaught of
tablet computers leading to the shrinkage of
revenue from PC division, Meg Whitman felt
that this is the best time to divide the company
to prepare the company for the next stage of
growth.
A glimpse of the financials of HP
Based on last year’s revenues, both parts of
HP would have ranked among the 50 largest
US companies. HP’s PC and printer businesses
produced revenues of $55.9bn in its last
financial year, almost identical to the combined
$55.7bn of its enterprise computing, services
and software divisions.
HP’s finances in FY2013:
• Total revenue of $112.3 billion was down 7%
year over year
• Enterprise systems revenue of $28.2 billion fell
5% year over year
• Its operating margin increased from 13.9% to
15.3%
• Enterprise services revenue of $23.5 billion
was down 8% year over year
• Its operating margin fell from 6.9% to 2.9%
Figure 2: HP’s Recent acquisitions
• Printing revenue of $23.9 billion fell 3% year
over year
• Its operating margins increases from 14.6% to
16.3%
• Personal systems revenue of $32 billion fell
10% year over year
• Its operating margin fell from 4.7% to 3.0%
The last three quarters of 2014 are better but not
exciting enough to match the turnaround efforts
by the top management. Enterprise systems
revenue was flat YOY at $20.5 billion and Printer
revenue was down by 3% YOY at $17.2 billion.
However, these divisions have higher margins
at 15% and 18% respectively compared to the
single-digit margins at other divisions of the
company. HP has about $20 billion debt and
$14 billion in cash and other investments. It is
expected that debt would be transferred to HP
Inc and make HP enterprise debt free, although
the decision is yet to be finalized.
Turnaround efforts
The turnaround efforts at HP resulted in
unsuccessful acquisitions notable among them
was that of Autonomy, the UK’s largest software
company by market capitalization. On Aug 28
2011, HP offered to buy Autonomy at 23x EBITDA
valuing the company at $11 billion. However,
within a year of acquisition, HP reported $5
billion write-down after being alerted by a
whistle blower about the serious accounting
improprieties at the software company. It
resulted in a severe dent in the share price of HP
as well as in the confidence of its investors. This
ugly spat occupied the front pages of business
dailies in that year.
© FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG