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HP shuffles top ranks, dashes 2014 growth hopes

A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013. REUTERS/Stephen Lam
A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013. REUTERS/Stephen Lam

By Edwin Chan

SAN FRANCISCO (Reuters) - Hewlett-Packard Co shuffled its top ranks on Wednesday, shifting a star executive to a role identifying acquisition targets after a disappointing performance from the division he oversaw curtailed the No. 1 PC maker's 2014 outlook.

Shares in HP dropped 8 percent in after-hours trading after the company reported a 9 percent decline in Enterprise Group revenue, the company's second-largest division and a critical component of CEO Meg Whitman's plan to transform HP into a provider of enterprise computing services able to take on IBM and Cisco Systems Inc.

Whitman replaced Dave Donatelli with Bill Veghte at the helm of the Enterprise Group on Wednesday, calling the unit's performance "very disappointing." That, plus a persistent decline in PC sales as tablets and smartphones revolutionize computing, led her to backpedal from when she said in May that 2014 revenue growth was still possible.

"What has changed about 2014's outlook is a couple of things - Enterprise Group's performance especially during the quarter," she told analysts on a conference call. "Weak execution has amplified the market challenges we know exist."

"It's unlikely ... that we'll see the growth in 2014 that I had hoped."

The Silicon Valley stalwart, which has been undergoing a radical reshaping under Whitman for the past two years, is grappling with weak IT spending globally. Poor sales and product execution, along with weakening demand for the industry-standard servers that comprise the largest part of its corporate hardware business, is aggravating the situation.

Donatelli, a rising star that Wall Street analysts once considered a candidate for a tech CEO position, relinquishes his post as chief of the unit that sells servers, storage and software services to organizations. He will instead seek out early-stage technologies for investment, the company said.

The executive engineered some of the company's most significant acquisitions in past years, including of 3Com and 3PAR, which helped catapult HP deeper into the networking and storage markets, respectively.

Whitman said the computing giant was "back in the market" for strategic acquisitions, which she saw as essential to a continued transformation.

Veghte takes over immediately as head of the division, and will not be replaced as chief operating officer. Veghte joined HP in 2010 after a 20-year career at Microsoft Corp, which culminated in his heading the business side of the Windows unit. He also worked on developing and marketing Microsoft's server software.

Veghte's experience stand him in good stead as corporate IT infrastructure moves toward a cloud- and software-based model, versus the traditional structure of large servers on site to store and process data.

"He's going to be looking at the segment through a different lens," said Shebly Seyrafi, an analyst at FBN Securities.

REVENUE SLIDES

CEO Whitman, who took the reins at HP in September 2011, is trying to revive the company after years of board turmoil and a backdrop of rapidly declining global PC sales, but has not yet halted revenue declines.

Donatelli is the latest executive with a strategic role to have been replaced. In June, HP moved PC division chief Todd Bradley into a new job aimed at improving its China business and distribution relationships around the world, a move many analysts deemed a demotion.

Donatelli's division accounts for about a quarter of the company's overall sales.

In all, the company recorded revenue of $27.2 billion in the fiscal third quarter, down from $29.7 billion a year earlier. That missed the $27.3 billion in sales that Wall Street had expected, on average.

Net income in the quarter came to $1.39 billion or 71 cents a share, compared with an $8.9 billion loss a year earlier when the company swallowed a big writedown of the IT outsourcing business it inherited when it bought Electronic Data Systems for close to $14 billion in 2008.

Excluding one-time items, the company earned 86 cents a share, matching the 86 cents average forecast by analysts on Thomson Reuters I/B/E/S.

Shares in the company slid to $23.42 in after-hours trade, from a close of $25.38 on the New York Stock Exchange.

(Additional reporting by Bill Rigby in Seattle; Editing by Phil Berlowitz and Stephen Coates)

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