HP’s quarter afflicted by webOS fallout, weak services mix

In its fourth quarter, Hewlett-Packard (s HPQ) continued to deal with fallout from its decision to nix its webOS-based tablets, a less-than-stellar mix of services, and its month-old acquisition of Autonomy. The question is how long those reverberations will impact its profitability and growth prospects. Eight weeks into her job, CEO Meg Whitman used the earnings call to manage expectations — downward — and to reassure value investors that HP is in it for the long run.

Last year, former CEO Leo Apotheker dubbed mobile devices, cloud computing and enterprise software key focus areas for HP — a vision subsequently endorsed by Whitman after his ouster. Of those three areas, only enterprise software gave HP room to smile last quarter, however.

Here are the top takeaways from Monday night’s HP fourth-quarter and FY 2011 earnings call.

1. The webOS decision still hurts

For its full fiscal year, HP wrote off $3.3 billion in charges related to shutting down its webOS hardware business, a move that put it behind in the race for tablet market share. But the webOS saga isn’t over yet: HP still has to decide on the future of the software itself. HP had banked on webOS as the foundation of both its tablet and smartphone strategy. The TouchPad tablet is dead. What will HP do in phones?

2. Autonomy is huge

Whitman remains “excited” by the prospects Autonomy brings to the table in the area of big data. The $10.2 billion deal closed in October and in the ensuing month, HP formed a new information management business group, combining Autonomy with Vertica and other software “assets” under former Autonomy CEO Mike Lynch, who now reports directly to Whitman. Whitman touted Autonomy’s “remarkable ability to manage unstructured information in a way that no one else in the market does,” which will add value across HP. When former CEO Leo Apotheker announced plans to buy Autonomy for $10.2 billion, investor reaction was to run for the exits. HP lost $12 billion in market cap the following day.

Now HP is banking that Autonomy will further boost its enterprise software business, which logged $976 million in revenue for the quarter, up 28 percent from the year-ago period. HP also reported 33 percent growth in software license sales, 36 percent growth in software-related services revenue, and 20 percent growth in support revenue.

3. No more big deals

No matter how glowingly HP execs now speak of the Autonomy deal, they have taken the bad reaction to heart, and Whitman repeatedly stressed HP’s future focus on internal, organic growth rather than more blockbuster acquisitions. R&D spending will increase across the product units, she said.

While HP might make some acquisitions, it will likely be in the “sub-$500 million range . . . We might get to $1 billion, but I doubt it,”  she said.

But she also left some wiggle room. “Let me reframe that. If there is a great acquisition that’s in the $1 billion range, maybe we will take a look at it. But we’ve got to be sure it fills a hole, that we don’t pay too much for it and that we are financially disciplined about it.”

4. Very little cloud talk

No one on the call uttered the “C” word, but both Whitman and CFO Cathie Lesjack said HP must focus on higher-margin services. To many that means cloud-related services. Whitman acknowledged that the company lacks the right tools and mix in that business, which means it didn’t perform as well as it should have in 2011.

Lesjack concurred: “We know that we’ve got to improve our mix of higher margin, higher growth business services such as applications and that’s going to take time. ”

One of the tent poles of Apotheker’s strategy was for HP to field an array of cloud-based services, including marketplaces for both consumer and enterprise applications, reachable from a full array of HP-designed end points from smartphones and tablets to laptop and desktop PCs. Now that the tablet is dead and the company still has to articulate a smartphone strategy, it’s probably natural that the company would defer such discussion.

5. A lot of headwind

Whitman stressed that much of HP’s current struggle derives from non-HP-specific issues, which range from the floods in Thailand that are constraining hard disk supplies to a consumer-spending slowdown that is spreading to the commercial sector and dinging sales of printing supplies. Some on the call seemed to doubt that characterization. Sanford Bernstein analyst Tony Sacconaghi said HP put more weight on the macroeconomic climate than its competitors.

“Most companies are coming in slightly below normal seasonality for this quarter. You came in dramatically below normal seasonality. [HP industry standard servers] grew at minus 4 percent, IBM (s IBM) was up plus 1 percent, Dell was up plus 12 percent. [It] looks like you lost share. The PC market grew at 3 percent to 4 percent, you grew at 2 percent in units. [HP’s printing business] grew more than 10 points slower than Lexmark (s LXK). Just some simple benchmarking would actually suggest that you’re losing share.”

Whitman said HP’s year was affected by both macroeconomic trends, including slower consumer and commercial segment spending, as well as its own missteps, especially its back-and-forth on keeping its big but low-margin PC business. “No question, we did ourselves in there,” Whitman said.