HP discloses strategy for recovery

Addressing Wall Street for the first time since taking the helm, CEO Mark Hurd describes how HP will make a comeback.

NEW YORK--Hewlett-Packard is on the road to recovery and focusing on markets that will help grow revenue by 4 percent to 6 percent in fiscal 2007, CEO Mark Hurd told Wall Street analysts Tuesday.

For the first time since taking the helm in March, Hurd directly addressed the Wall Street community, laying out the strategy for HP's recovery at Tuesday's annual analyst conference in New York.

Mark Hurd

Hurd, who has a strong background on operations, didn't unveil any big changes in product strategy but said the company would button down and focus on high-growth markets such as data storage, data center consolidation, high-end printing and mobility.

"We have a lot of stuff to go work on," he said. "We don't think Q4 was an ultimate victory. We are continuing to work hard. But I believe that HP is aligned with trends in the market. We have strong assets that we can leverage in our core businesses, and there are opportunities in adjacent markets we can leverage."

Hurd said revenue is expected to grow to $91 billion in fiscal 2006, up from $89.5 billion the previous year. In fiscal 2007, which begins in November 2006, profit margins are expected to grow to 8 percent, up from 7.5 percent the previous year.

Specifically, HP is focusing on three major businesses: enterprise virtualization, high-end printing and mobility.

Enterprise virtualization focuses on data center consolidation and storage area networking, two areas where HP predicts enormous growth. In high-end printing, HP will focus on photos lasers and multiple services.

Vyomesh Joshi, executive vice president of the imaging and printing group, said it will take a combination of all these smaller printing markets to hit the revenue growth target of 4 percent to 6 percent.

"We want to build a clear portfolio filled with a lot of singles instead of all home runs," he said.

He also emphasized the importance and strength of the company's 21-year partnership with Canon.

"The relationship with Canon is strong," he said. "It's a win-win for both of us, so we see tremendous benefit."

Mobility is another key growth area for HP, which has a strong portfolio of laptop and handheld devices. Todd Bradley, executive vice president of the personal-systems group, said the company will continue to develop this strategy.

Since taking the reins from former CEO Carly Fiorina, Hurd has focused on cutting costs. He has cut more than 15,000 jobs in the past six months and has restructured the business, eliminating a sales division. Like his predecessor, he has resisted making big changes such as spinning off entire business divisions.

He reiterated the company's strategy on acquisitions, which includes going after smaller companies that will help fill out product and technology holes in the markets on which HP is already focused.

"We want acquisitions to align with our framework," he said. "All the acquisitions we've done in the past year were aligned with our strategy framework. They were digestible and manageable. I'll never say 'never' to anything. The world is dynamic. But nothing I have said should be taken as a change in our direction."

Key to meeting financial goals is how well the company executes on its strategy. Hurd said that beyond introducing more incentives for its work force to increase productivity, HP needs to focus on improving leadership and fostering more accountability within every division of the company.

"We can do better than we are doing," he said. "We need to improve the alignment from a leadership perspective. Compensation is only part of the equation."

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