"2006 was an important year. We're a company that's transforming, not transformed. We still have a lot of work left to be done."
That's the upshot from HP CEO Mark Hurd addressing a couple of hundred Wall Street analysts and assembled media at the Sheraton New York this morning.
I made the cross-country trip last night to be on hand at the company's SAM, or Securities Analyst Meeting, because it comes at a critical time for the company: shares are up 9% since September, and have been surging all year long. HP now enjoys the World's Largest PC Maker title, wrested last quarter from rival Dell. The company weathered a battery recall issue that plagued all its rivals. HP posted better than expected profit and revenue last quarter. HP seems poised to become Silicon Valley's first $100 billion company in terms of revenue. The outlook seems strong. All is well in Palo Alto.
That's the good news.
But there are some clouds, legal and otherwise. Civil charges connected to the boardroom spy scandal were dropped last week, but criminal charges against some former execs, including former chairwoman Patricia Dunn, loom. There's an ongoing, formal, SEC investigation, an FCC inquiry, a shareholder class-action lawsuit alleging, among other things, insider trading by top execs including CEO Mark Hurd.
But there are fundamental, industry issues HP faces as well. Eric Ross at ThinkEquity Research says: "Everything I have heard to this point has been unhealthy. Everyone is waiting for Vista (from Microsoft). I just don't think Vista is going to be as big a driver as people think. So there are some difficult business currents that are eventually going to catch up with HP whether we like it or not. The stock has had a great run, but this slowdown in PCs and consumer electronics spending is something that could be impacting the stock going forward."
That's not good. Meaning there's enormous pressure on Hurd and his team to continue to cut costs to prop up margins if the key market that HP operates in is slowing down. Remember,
25% of HP's revenue comes from the consumer. In the meeting this morning, Hurd says costs will continue to be cut. The company is fat in real estate, for example, and it seems as though he's re-fueling his chainsaw to keep cutting those costs which has already included 15,000 job cuts and the elimination of three layers of management.
Hurd says he's pleased with the progress the company has made in 2006. And shareholders looking at the company's stock seem to agree. But his message is clear: the reorg has only just begun, and if he can continue executing on this wide-ranging strategy, there's more opportunity ahead in 2007. But with the legal challenges looming, the pressure on HP to achieve -- to eclipse the legal headlines the company faces -- is greater now than maybe ever before.
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