Ruh-roh: HP to take $8B charge

More bad news for Hewlett-Packard(s hpq). On Wednesday, the company said it will take a big $8 billion charge related to its services business for its latest quarter.

The massive charge basically indicates that the enterprise IT giant overpaid for Electronic Data Systems (EDS), the IT services company it bought for $14 billion four years ago. That purchase, negotiated on the watch of former HP CEO Mark Hurd, struck some observers even at the time as very expensive. (The Register’s headline was HP buys EDS: What are they thinking?)

HP CEO Meg Whitman

HP also said John Visentin, who had run enterprise services, is leaving and will be replaced by Mike Nefkens, VP and GM of enterprise services for EMEA.

The company has struggled to find focus and cut costs over the past few years and is not new to big, expensive deals, It took heat when then-CEO Carly Fiorina paid $25 billion for Compaq in 2002. That deal probably contributed to her ouster. And in 2010, Leo Apotheker, decided to buy Autonomy for $10.2 billion. He was out in less than a year. All that turmoil has led one Wall Street analyst to call for HP to break up its consumer and enterprise businesses.

Meg Whitman, who stepped in for Apotheker, is trying to turn the ship around by cutting 27,000 jobs, or 8 percent of HP’s workforce  —  a process that the company said is proceeding apace. It also revised upwards the pre-tax charge it expected to pay to cover the early retirement program for its third quarter. It now estimates a charge of $1.5 billion to $1.7 billion, up from approximately $1 billion, citing a higher-than-expected acceptance rate.

Excluding these charges, HP expects to report earnings of $1 per share, up from a previous range of 94 cents to 97 cents, for its third quarter. It’s earnings call will be August 22.

Feature photo courtesy of Flickr user Images_of_Money