HP cuts forecast, looks ahead

NEW YORK — Hewlett-Packard Co. is bracing for weaker financial results this year as it overhauls its services business to undo what its CEO described as years of neglect under his predecessor.

For too long, the business focused on short-term results rather than expand into high-margin areas,

such as helping businesses convert their systems to new technologies, CEO Leo Apotheker said Tuesday.

Fixing that will cost the company in the short term, he said. HP cut its full-year earnings forecast Tuesday. Investors responded by sending its stock down more than 7 percent to a two-year low.

Apotheker, who became CEO in November, said HP never followed through on a strategy it laid out years ago to focus on the high-margin areas.

“We are now going to execute the strategy,” Apotheker said.

That includes finding an executive vice president of services who will report directly to Apotheker, he said.

“We view these changes as logical, mostly proactive and positive for long-term operating profit expansion,” said Jayson Noland, an analyst at Robert W. Baird & Co.

Although he didn’t refer to his predecessor by name, Apotheker implied that he inherited the problems from Mark Hurd, who was forced out in August in the wake of an investigation into his relationship with a former contractor. Hurd, who now works for rival Oracle Corp. as co-president, declined comment through a representative.

To consumers, HP is known as a maker of printers and personal computers, but it has been expanding into providing computer networking and technical services to other businesses. Under Hurd, HP more than doubled its services portfolio with the acquisition of Electronic Data Systems for $13.9 billion. HP became the second-largest company in the market behind IBM Corp.

Services now account for 28 percent of HP’s revenue, nearly as much as the PC business.

Apotheker’s move to transform the services division is an indirect acknowledgement of a frequent criticism that EDS’s work was too focused on low-margin tasks. In the services world, those can include basic services and outsourcing tasks, such as installing new PCs and servers and managing companies’ data centers.

IBM often says that its advantage lies in its advanced software and deep industry expertise, which allow it to pursue more profitable work such as analytics and building “smart” power grids and transportation systems.

HP, the world’s largest PC maker, is also struggling in the PC business. Apple Inc.’s iPad tablet is cutting into PC sales more deeply than PC makers had expected. Consumers are also holding back on PC upgrades because of the economy, Apotheker said, while sales to businesses are going well.

“There’s no question that the impact of tablets has been slowing down the renewal rate of PCs. I think that is a trend that will ebb away. I think the PC will continue to be the main computing device in many homes,” Apotheker said in an interview.

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