HP New Zealand annual loss widens

23:12, Aug 14 2013

The New Zealand subsidiary of troubled American computer giant Hewlett-Packard has posted a massive $92.5 million loss for the year to October.

The subsidiary's revenues fell nearly 12 per cent to $647m.

In the United States, HP's shares fell more than 6 per cent overnight after Goldman Sachs downgraded the stock to a "sell".

The broker warned investors might be overly optimistic about the company's chances of successfully turning around its business while it grappled with declining sales of personal computers and printers.

Auckland-based IDC Research analyst Adam Dodds said the company's New Zealand decline had more to do with its flagging fortunes in the information technology services market.

HP New Zealand threatened to dominate parts of that market following its US parent's 2009 acquisition of fellow American IT services firm EDS, which had enjoyed a strong position in the government and corporate market in New Zealand in particular.


However, HP has since had a low profile in the services sector, losing outsourcing work at major clients Fonterra and Telecom.

Dodds believed HP still had "globally relevance", but forecast further contraction ahead for the company in New Zealand as Fonterra renegotiated its desktop and server contracts and more companies reconsidered the way they bought IT.

It also did "not bode well" that HP had largely failed to secure positions on government IT supplier panels while public sector agencies pushed ahead with plans to centralise procurement, he said.

No one player was picking up work lost by HP, and Telecom's Gen-i had also lost ground in its latest interim results, Dodds said.

"We are having a 'rebalance' in the marketplace around the way in which customers manage their own capability, and there is a swing to 'in-sourcing' or 'right-sourcing'.

"At the same time there is a technology shift going on affecting the 'old world' models around deploying and supporting desktops, middleware and infrastructure - all of those 'legacy' activities.

"HP is caught up in the storm and until they figure out where they have got depth of capability, it is going to be pretty hard for them to move forward."

Dodds said it became unclear who was in charge of the subsidiary's business in the wake of the EDS merger.

"When you look at HP in New Zealand from a leadership point of view there has been a bit of a challenge in that space. It was unclear who reported to whom."  

Those issues have now been resolved, Dodds said.

HP New Zealand country manager Keith Watson has consistently refused to disclose local staff numbers, but the subsidiary's wage bill suggests it has shed at least a third of the 2900 staff it employed at the time of the EDS takeover.

Dodds estimated staff numbers now stood between 1500 and 2000.

Last year its wage bill slipped from $153m to $141m.

In its latest result, HP New Zealand wrote off $34.5m in goodwill it had been carrying from the acquisition of EDS New Zealand, as well as $54.4m in tax credits.

This year's loss followed a $27m net loss and 10 per cent revenue drop the previous year, and left the subsidiary in $211m of negative equity.