HP too reliant on IT outsourcing

Services to be broken out into new division.

HP will appoint a new head for its burgeoning enterprise services division after chief executive Leo Apotheker found the company was too reliant on IT outsourcing.

Until now, HP enterprise services, bolstered by dozens of EDS-legacy outsourcing deals, has sat under the company's US$54 billion Enterprise Business umbrella, led by executive vice president Ann Livermore.

Apotheker told investors today that Livermore would remain the interim leader of services until HP had recruited an executive vice president to oversee it separately, according to a Barrons report. 

Besides a 5 per cent decline in PC revenues, year-on-year services revenue grew 2 per cent while the unit's 15.2 per cent operating margin fell 0.6 percent compared to last year, according to HP's second quarter 2011 results.  

The unit suffered because HP was too focused on short-term margins, according to Apotheker.

“I have concluded that we had a solid strategy for services, but we didn’t invest in the path to support the strategy,” he said, according to the report. 

“Instead, HP focused on maximising its shorter-term margins. We have over-executed operationally and under-invested strategically.

"As a result, our short-term margin expectations have been too high. This has impacted our ability to create sustainable growth for the long term.” 

The reliance on IT infrastructure outsourcing could be a difficult to break. HP's US$3.7 billion IT infrastructure outsourcing revenue for the quarter made up the bulk of its US$8.9 billion services income, which overshadowed technology services, application services and business process outsourcing by at least US$1 billion a piece. 

Apotheker’s comments regarding a leadership change for services confirmed earlier reports that HP would split up the Enterprise Business monolith as part of a major strategic overhaul.   

 HP cut its outlook for full-year profit, excluding items, to "at least US$5.00 per share" from previous outlook of "US$5.20 to US$5.28" and cut full year revenue outlook from US$130 billion to US$131.5 billion to new forecast of US$129 to US$130 billion, according to Reuters.