Saturday, August 24, 2013

Shifting Tech Scene Unsettles Big Players

On Wednesday, Hewlett-Packard announced several significant personnel changes, along with sharply lower revenue and narrower operating profit margins. It was the latest in a string of disappointing earnings news from big technology companies that has some asking if the industry, after at least five years of growth, is finally slowing down.

“We’re doing a turnaround in not the greatest economic environment,” said Meg Whitman, H.P.’s chief executive, in an interview. “Everyone is trying to position themselves for the new style of information technology. The fittest will survive.”

But the bad earnings news from older, big tech companies does not — so far — appear to be spreading to more youthful Internet companies like Google or, which provide their software as a service over the Internet.

H.P.’s news, for example, comes on the heels of surprising plans announced last week to cut about 5 percent of the work force at the network computing company Cisco Systems and continuing issues at giant tech companies like Oracle, Intel and even Microsoft.

If there is a common thread among these older outfits, long considered bellwethers for their industry, it is that they are all struggling to adapt to a computing world where people use the Internet on mobile devices like smartphones and tablets. Likewise, the information they retrieve is stored in a cloud of network computers that are used by many companies at the same time.

In some cases, they are big makers of things like personal computers, which people are not buying as quickly as they once did. In other cases, they are making costly corporate computing equipment like routers, which direct traffic on Internet networks. Those routers are still in demand, but they don’t typically attract the prices they once did.

“All the traditional enterprises are in a pickle,” said Krish Ramakrishnan, a former general manager at Cisco who now runs Blue Jeans Network, a cloud-based videoconferencing service. “They want to have cloud businesses, but each of their divisions will have to transform differently.”

For H.P., a leader in personal computers, printers and computer servers, as well as data storage and networking, sales were down in almost every business. Total revenue was $27.2 billion, down 8 percent from a year earlier. Net earnings were $1.4 billion and, excluding special charges, were about 15 percent below their year-ago level. H.P. stock, which fell 1.8 percent in regular trading on Wednesday, dropped 6 percent more in after-hours trading.

Ms. Whitman also announced several executive changes, replacing the head of products and sales for business, and consolidating marketing and communications. Earlier this year she also replaced the head of her PC division.

“Revenue growth across the company has been very weak,” said Toni Sacconaghi, an analyst with Sanford C. Bernstein. He noted that H.P. now had one of the worst share valuations among all major American companies, which he said “appears to reflect a permanently declining business.”

If it is any consolation, Ms. Whitman has plenty of company. Michael S. Dell, the chief executive of the computer maker Dell, is fighting to take his company private, a move that will almost certainly mean layoffs as the company moves away from selling personal computers, a once-good business that has gone bad thanks to the shift to tablet computing devices.

And at Cisco, sales are still strong, but John T. Chambers, the company’s chief executive, signaled trouble ahead with his job cuts, which he said were necessary because of economic “uncertainty.”

While there is no doubt there are broader economic issues affecting big-ticket tech sales — particularly in Asia, where Cisco’s sales were off 3 percent from the same quarter last year — analysts believe Mr. Chambers’ economic discussion fails to address the technology changes with which Cisco is trying to cope. In recent years, the company has faced a series of cheaper competitors, many of which rely more on software and off-the-shelf components, as compared with Cisco’s custom-made equipment.

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