HP takes an $8B hit

AP

(MoneyWatch) Hewlett-Packard (HPQ) will write off $8 billion in goodwill in its services business this quarter and shake up the group's management. The move is just the latest indication that the energy and money that HP had put into building a consulting arm, much as IBM has profitably done, has not paid off the way management and the board had thought.

Senior vice president and general manager of HP Enterprise Services in the EMEA region (Europe, Middle East, and Affrica) Mike Nefkens will become the acting head of the group. Former top services executive John Visentin will leave the company "to pursue other interests," as a press release announced. Jean-Jacques Charhon, senior vice president and chief financial officer of the division, will become chief operating officer, focusing on "increasing customer satisfaction and improving service delivery efficiency, which will help drive profitable growth."

HP has put significant resources behind starting its consulting business, including a string of acquisitions since 2004, culminating in the 2008 $13.9 billion purchase of Electronic Data Systems (EDS). In the year it acquired EDS, HP added nearly $11 billion in goodwill to its balance sheets, almost all due to the acquisition. It was a 50 percent increase at the time. The current write-down would be nearly 72 percent of what HP recognized when it acquired EDS.

In its most recently reported quarter (ending April 2012), the services division had $8.8 billion in revenue, which was roughly flat, year over year. However, earnings before taxes for the division were $997 million, down more than 27 percent year over year. The departure of Visentin suggests that services in the quarter that ended in July may also have taken a significant financial hit.

CEO Meg Whitman and the board are under considerable pressure to end the long period of poor performance that HP has seen.

  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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