HP released its second fiscal quarter earnings this afternoon, hitting its profit targets but missing on revenue.

HP reported revenue of $27.6 billion for the three months that ended on April 30, down 10 percent from $30.7 billion a year ago. Earnings per share were 87 cents, down 11 percent from 98 cents a share a year ago.

While it isn’t as cool as Apple and it doesn’t make games like Microsoft, HP is a critical piece of the electronics industry, as it straddles both the consumer and enterprise markets across a bunch of product lines. The company has $120 billion in annual revenue (the biggest in the industry by that measure) and more than 330,000 employees. It has made 70 acquisitions in the past 15 years, but its stock price has been hurting lately.

Analysts estimated HP would report non-GAAP earnings of 81 cents a share on revenues of $28.08 billion. Analysts had previously expected third-fiscal quarter earnings of 84 cents a share and full-year earnings of $3.49 a share.

Meg Whitman, chief executive, accentuated the positive. In a statement, she said, “We beat the upper end of our non-GAAP diluted EPS outlook for the quarter by 5 cents per share, driven by better than expected performance in Enterprise Services and Printing, coupled with the accelerated capture of restructuring savings and improvement in our operations.”

Last quarter, the company had net income of $1.2 billion for the first quarter of 2013, compared to $1.5 billion in the same quarter a year ago, as revenue fell to $28.4 billion. That translates to $0.82 per share, which is down 11 percent from 2012 but is well above HP’s previously provided guidance of $0.68 to $0.71 per share.

It’s better than HP’s outlook in November, when the company had just reported bad numbers and came clean on its awful acquisition of Autonomy. And it’s much better than the second quarter of 2012, when HP faced its biggest-ever quarterly loss.

Whitman said, “I am encouraged by our performance in the second quarter, and I feel good about the rest of the year. As I have said many times before, this is a multi-year journey. We have a long way to go, but we are on track to deliver on our fiscal 2013 non-GAAP diluted earnings per share outlook.”

HP reduced its debt during the quarter. Personal systems (PC) revenue was down 20 percent from a year ago, with a 3.2 percent operating margin. Commercial PC revenue was down 14 percent and consumer revneue was down 29 percent. Total unit sales were down 21 percent, while desktops were down 18 percent and notebooks were down 24 percent. HP is poised like other PC makers to introduce new machines based on Intel’s latest microprocessors, code-named Haswell.

Printing revenue was down 1 percent, but its operating margin is still strong at 15.8 percent. Hardware unit sales were down 11 percent from a year ago, with commercial units down 5 percent and consumer units down 13 percent.

Enterprise revenue was also weak, down 10 percent. Networking revenue was up, industry standard server revenue was down 12 percent, and business critical systems were down 37 percent. Enterprise services were down 8 percent from a year ago. Software revenue was down 3 percent, and financial services were down 9 percent from a year ago.

HP has been dealing with a couple of negative trends. The PC market has slowed down because of rising tablet sales. And it has also had to deal with a downward shift in printing habits as the growing use and accessibility of the Internet makes paper less necessary. HP’s financial services business has been growing, but most of the other parts have been weak. On top of that, HP hasn’t been participating in the mobile market at all.

Whitman has previously stated that HP will not be releasing a new smartphone until 2014. HP is reportedly working on Android-based tablets and phones.

The U.S. Computer Emergency Readiness Team (US-CERT) revealed that Samsung printers (and some Dell printers manufactured by Samsung) contain a hardcoded backdoor which could allow access to hackers, who could then make changes to the device, see information and data passed to the printer, and possibly use the printer as a vector for further attacks inside a company’s network.

The backdoor operates over SNMP, the simple network management protocol, and remains active even when SNMP is disabled. Even worse, it does not require any authentication … meaning that blackhats who are aware of the vulnerability can simply walk right in.

If you’ve just bought a printer, you’re likely safe: Models released after October 31st, 2012 are not affected. A patch will be released “shortly,” Samsung and Dell have said.

Vulnerable organizations that need a fix instantly, network administrators can block the custom SNMP port, CERT said. Another suggestion — and good network practice — is to only allow connections from trusted sources.

photo credit: alles-schlumpf via photopin cc

Printer manufacturer Lexmark is in trouble today, announcing it’s letting go of 1,700 workers and is killing off its struggling inkjet printer business.

The layoffs represent about 13 percent of the company’s workforce, including 1,100 manufacturing jobs. Overall, the restructuring is expected to cost $160 million over three years and to return ongoing annual savings of $85 million in 2013, increasing to $95 million annually by 2015.

“Today’s announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings,” said Lexmark CEO Paul Rooke in the company’s official statement on the news.

“Our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization.”

Inkjet printers are without question a consumer product, and consumer interest in buying, maintaining, and actually using home printers is decidedly flagging. With cloud-based document management services (including totally virtual “faxing” and e-signature services) popping up all around the web, consumers now have access to more affordable, faster, and more environmentally friendly options than Ye Olde PC Load Letter.

The laser printer business, however, will remain at Lexmark; these machines are still going strong in businesses and the enterprise.

Lexmark will shutter its Cebu, Philippines, inkjet supplies manufacturing facility by the end of 2015. It will kill its inkjet development activities worldwide, from facilities to contract to remaining inventory, by the end of 2013. Advisors are helping Lexmark sell of its inkjet printing technology as well.

Through dividend payments and share repurchasing, Lexmark said it will have returned more than half a billion dollars to its shareholders since mid-2011 — this in spite of a 30 percent decline in share price, a 41 percent decrease in net income, and an 11 percent drop in revenue year over year:

With its patent sale efforts looking down, bankrupt Kodak has found a new way to make some money.

The company has decided to sell its consumer film, photo kiosk, and commercial scanner businesses. The sale of the units will leave Kodak offering just consumer printers and commercial film to Hollywood.

While no word has leaked yet on which company Kodak is selling to, BusinessWeek reports that the deal should be completed by the middle of next year.

“Kodak’s goal is not simply to emerge but obviously to emerge as a profitable, sustainable company, and today’s actions are moving us decisively along that path,” Kodak CEO Antonio Perez said.

The news comes as Kodak attempts to sell off its 1,100-item patent portfolio to the highest bigger. Last we checked, the process wasn’t going well, and Kodak seems to be actively distancing itself away from the idea of a sale.

“The company reiterates that it has made no decision to sell the portfolio,” Kodak said.

Instead of selling the patents outright, the company may simply aim to license them, allowing it to retain ownership and still make a few dollars. Either way, Kodak’s financial troubles are ongoing.

Hewlett-Packard reported its biggest loss in its 73-year history Wednesday, as it disclosed numbers for the third fiscal quarter ended at the close of July. That’s a huge setback for a pioneering Silicon Valley company and the world’s largest maker of PCs and computer printers.

The Palo Alto, Calif.-based tech giant reported a loss of $8.9 billion ($4.49 a share) on a GAAP basis, compared with a profit of $1.9 billion a year ago. But after excluding accounting charges, the company hit its earnings prediction of a non-GAAP profit of $1 a share, or $2 billion, compared to a profit of $1.10 a year ago. GAAP revenues were $29.7 billion, down 5 percent from $31.2 billion a year ago. In after-hours trading, HP’s stock is down 3.6 percent to $19.20 a share.

With such a loss, chief executive Meg Whitman will face considerable scrutiny from investors, analysts, customers, and the company’s estimated 350,000 employees. The size of the loss shows how much cleaning Whitman still has to do.

“HP is still in the early stages of a multiyear turnaround, and we’re making decent progress despite the headwinds,” said Whitman in a statement. “During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do.”

Much of the GAAP loss is related to a write-off of the value of its Enterprise Services division, which has been weighed down by the poor performance of Electronic Data Systems business that HP bought for $13 billion in 2008. The weakness at HP is in lockstep with Dell’s own disappointing quarterly report yesterday. HP’s earnings will be watched closely, since the company is a bellwether among tech companies.

“HP has been in restructure mode the last 11 months, and now Whitman needs to flex HPs muscle and position in cloud, security, and big data,” said Patrick Moorhead, an analyst at Moor Insights & Strategy. “These three items are enterprise’s hot buttons right now and HP has the goods to provide unique value.  In parallel, HP needs to clearly articulate how they will keep winning in PCs, as they are under market share attack from Lenovo.”

Analysts were expecting HP to report a loss of $4.31 to $4.49 a share — or $8.5 billion to $8.9 billion — for the three months ending July 31. That’s part of the price that HP has to pay for losing to Apple in the tablet and smartphone wars, as well as sluggish performance in its enterprise group. PC sales are under pressure as tablets horn in on laptop sales.

After accounting charges, analysts predicted HP would earn 98 cents per share on revenue of $30.19 billion. A year ago, HP earned $1.9 billion, or 93 cents a share, on revenue of $31. 2 billion. HP’s stock is trading at $19.93 a share a share, giving the technology giant a value of $39.3 billion. By comparison, Apple is worth $615 billion.

HP said its after-tax charges amounted to $10.8 billion, or $5.49 per share, related to the “amortization and impairment of purchased intangible assets, the impairment of goodwill, restructuring charges, acquisition-related charges and charges relating to the wind-down of certain retail publishing business activities, including the previously announced charges related to the impairment of goodwill within HP’s Services segment, the restructuring program announced in May 2012, and the impairment of the purchased intangible asset associated with the ‘Compaq’ trade name.”

HP’s PC group (Personal Systems) saw revenues drop 10 percent from a year ago. Commercial sales were down 9 percent. Consumer was down 12 percent. Desktops were down 6 percent, while laptops were down 12 percent. Overall PC unit sales were down 10 percent. The printer group (Imaging and Printing) saw revenue drop 3 percent from a year ago. The enterprise group dropped 4 percent in revenue, and services were down 3 percent. Software was up 18 percent, and HP financial services was up 2 percent.

HP said that its forecast for earnings per share for the fiscal year ending October 31 will be $4.05 to $4.07 a share, at the low end of its previous guidance, on a non-GAAP basis.

It is the worst loss since HP started in 1939. Chief executive Meg Whitman is still coming up with plans to turn around the company, after a year on the job. One of her initiatives is to cut HP’s staff by as much as 27,000 over a couple of years, recording a charge of $1.5 billion to $1.7 billion.

HP is banking on a revival for its PC business as Microsoft launches its Windows 8 operating system on Oct. 26.

Researchers at the Agency for Science, Technology and Research (A*Star) in Singapore have created a printer capable of spitting out images with 100,000 dots-per-inch resolution (dpi) – a big improvement over the 10,000 dpi in current inkjet printers.

To do this, the researchers had to go small. Within each colored pixel are four nanoscale nodes, each topped with silver and gold nanodisks. To create color, the researchers simply altered the size of and spacing between each node, an effect called “structural color.”

The result, as the image above shows, is a somewhat grainy full-color image that measures just 50 micrometers across.

More interesting, because the nodes can’t get any closer to each other without blurring the overall image, the researchers say they’ve obtained the highest possible resolution for images.

But there’s a problem: As Northwestern University professor Teri Odom told Nature, even those with perfect vision can’t see images smaller than 20-30 micrometers. So the new technology won’t have too many consumer uses.

But the A*Star team has a better application. In addition to cryptography, the technology can be used to create nanoscale watermarks and read-only high-capacity DVDs. That may not be very sexy, but if the researchers play their cards right, it could end up being very lucrative.

The reason for that shift is interesting, and it may underscore the changing of the guard in Silicon Valley. Consumers are flocking to Facebook and are uploading billions of photos to the social networking service, where they can share digital images of their lives with their friends. That may mean that users don’t need to print photos and send those copies to their loved ones as often.

It’s ironic since HP is laying off 27,000 employees, while Facebook was able to go public in a $100 billion-plus initial public offering. That means the very first company of Silicon Valley is now being made obsolete in some ways by its latest nouveau riche company.

HP said today that its Imaging and Printing Group (IPG) revenue declined 10 percent from a year ago and operating profit margin was 13 percent. Commercial hardware revenue was down 4 percent and commercial printer unit sales were down 7 percent. Consumer hardware revenue was down 15 percent from a year ago and units sales were down 13 percent.

Predictions of a “paperless office” in the age of digital imaging have never come true. People still print, but the decline was evident enough this quarter for Whitman to mention it in a conference call with analysts. Ink has always been the cash cow of HP’s imaging business, since it sells printers for lower prices and charges a lot of money for ink. Many people don’t like to print because of the high cost of color ink. If people stop printing, then HP’s ink income could be in further trouble.

There are other reasons that HP’s printer business was weak. HP missed a cycle on producing multifunction color laser printers for the enterprise.

To deal with the decline, HP is experimenting. In emerging markets, the company is pricing printers higher and charging less for ink. That is generating more repeat sales of ink. Facebook has more than 900 million users on its social network. Whitman might want to visit Facebook chief executive Mark Zuckerberg and ask him to slow that growth down a little.

HP announced yesterday that it is merging two of its big divisions: the Personal Systems Group (PSG) and the Imaging and Printing Group (IPG), with the resulting group being lead by Todd Bradley (current GM of PSG).

Between them, these two groups represent approximately 50 percent of HP’s revenues. Is this a first step in some greater strategic initiative being implemented by the new executive administration of Meg Whitman, or something less dramatic?

Both groups have been relatively under-performing when it comes to profits, given that the PC hardware business has notoriously low margins. And even the printing business, which in the past generated stellar profits from its extremely high margin consumables business (i.e., ink, toner), has been having some difficulties lately as lower cost competition have impacted profits. Further both have exhibited a downward revenue trend over the past several quarters reflecting market realities, which will not likely have any dramatic upticks in the short term, especially given HP’s failure to effectively cash in on the big trends in mobility (e.g., its major failure with the Palm acquisition and subsequent write-offs).

So, by combining these two businesses which are heavily weighted towards the consumer market, is HP drawing a line in the sand between its future and its past? Is it positioning the business for a sell off (unlikely as it’s probably too big for anyone to acquire profitably) or a spin out (the more likely scenario)? Is HP about to pull a Motorola, who last year split in two along similar consumer (mobile devices) and business (primarily infrastructure) product lines?

As of HP’s Q1 2012 report, the Services group was approximately the same size as PSG but had nearly twice the profitability. The Enterprise Servers Storage and Networking Group, together with the Software Group, was approximately the same size as IPG with nearly equal profitability. And both are doing relatively well in light of a recovering business spending environment and need for infrastructure improvements in emerging markets.

I would argue that if HP is moving down the path of splitting up, it is the right move to make. The real growth opportunity for HP and its shareholders is in services, software, and higher margin hardware (e.g., servers, cloud-based systems, networking, storage). This is where the market is increasingly shifting its spending.

Further, by segregating PSG and IPG, HP can more clearly focus its R&D and marketing on its longer term strategic competition such as IBM, Oracle and SAP. SAP currently is not in the hardware business (and is unlikely to be in the future), but Oracle’s acquisition of Sun has not been terribly profitable, and in the longer term I predict it will likely undertake a similar hardware divestment. And of course, IBM makes hardware, but wisely got out of the low margin end of the business by selling it years ago to Lenovo (who has done well with it, by the way).

If my speculation is truly the motivation behind this move (and not just executive shifting and the retirement of IPG’s Mr. Joshi), then I applaud the move. A divided HP could actually increase its focus and improve overall performance for both entities after a split. It would let HP Enterprise focus on its expanding (and profitable) services and software business and face their strategic threats head on. And it would let the HP Consumer group (PSG/IPG) focus exclusively on competing with the likes of Lenovo, Samsung, and other rising emerging market stars (including Apple) that are clearly becoming existential threats to HP’s long term profitability.

HP has done this before, when it split off its test equipment and medical equipment groups to form Agilent in 1999 so it could concentrate on the emerging market for PCs and servers. So making this move now would not be unprecedented. Of course, only time will tell if the split actually takes place, but don’t be shocked to wake up one day in the not to distant future to see HP split itself in two.

HP logo: Don DeBold/Flickr

Jack Gold is the founder and principal analyst at J.Gold Associates, based in Northborough, Mass. He covers the many aspects of business and consumer computing and emerging technologies.

HP hasn’t commented. The move will have big consequences for HP’s top leadership. Vyomesh “VJ” Joshi, a 31-year veteran at HP and the leader of its Imaging and Printing Group, will resign from the company while the combined business unit will report to executive vice president Todd Bradley.

That’s a huge change for HP, and it could prove to be a very momentous decision for chief executive  Meg Whitman. Whitman replaced former CEO Leo Apotheker, who was fired last September for making poor decisions such as announcing a plan to spin off the PC group.

The reorg is related to cost-cutting and simplification measures that Whitman discussed during her last earnings call. If true, Whitman could be walking into dangerous territory. Joshi was a highly valuable executive and was considered for the CEO job a number of times. He was never picked to be the top dog in part because HP worried that it would lose its other division chiefs if it made one of them the boss. He was also considered to be too focused on just the printing and imaging part of the business, which can sometimes print money.

In the most recent quarter, HP said sales of IPG fell 7 percent to $6.3 billion while operating earnings fell 32 percent. HP attributed that to weakness in Japan as well as flooding in Thailand.

The new plan is to have a combined set of product offerings to approach consumers with. That sounds like something that wasn’t hard to do under the current structure.

Joshi, 57, has run the group since 2002. He was so tied up with the printing division that he must have had ink running in his veins. Bradley’s last big move was to purchase Palm. Bradley, 53, was Palm’s former CEO and has run the HP Personal Systems Group since 2005. Bradley will be in charge of two groups that had $65 billion in sales in 2011, or 51 percent of HP’s overall sales.

If this reorganization works, HP will look a lot more interesting to investors. But if it doesn’t, Whitman’s head will probably roll, just as Apotheker’s did.

In addition to settling on a good price for the Palm goodies, HP is also demanding that potential buyers license webOS back to it on the cheap for use in printers, a source with knowledge of the negotiations tells VentureBeat.

As for the status of the Palm sale, which includes webOS and Palm’s lovely treasure trove of patents, our source says that Intel has just begun discussions with HP. Our source also says that Qualcomm is still in the running for Palm, but the company has adamantly denied previous rumors about the deal.

Now I’m all for more innovative printers from HP, but it seems like a strange demand when the company is losing money every day it continues to hold on to webOS. (Pictured above, HP’s inexplicable printer/Android tablet combo.) HP paid $1.2 billion for Palm last year, and it revealed in its earnings report today that it spent another $1.66 billion just to wind down its webOS business, as AllThingsD points out.

HP has said previously that webOS could eventually make its way to printers and PCs, but now with a Palm sale imminent, it seems strange for the company to hold true to that initial promise. I can’t imagine that many consumers are chomping at the bit for webOS-enabled printers, and much of the benefit from using webOS as the basis of printer software — including ease of development and potential third-party app support — could be seen by jumping to Android.

Then again, it’s possible that HP has webOS printers near completion, so by licensing the software it’ll still be able to move forward with those products. Given that no major printer competitors are aiming for Palm, a potential buyer shouldn’t have any problem licensing webOS to HP (though that depends on how cheap HP’s demands are for the licensing fees).

And what of Amazon? In September we reported that Amazon was in deep negotiations to snap up Palm, but it’s unclear if that’s still the case now. I still think Amazon would be a good fit for webOS — definitely more so than other alternatives like Intel, Qualcomm, or, God forbid, RIM — because it would be able to take advantage of Palm’s software in future tablets. And of course, it wouldn’t hurt for Amazon to be sitting pretty with Palm’s patents.

“If we get out of the big M&A business, we have to invest in R&D,” the chief executive of HP said Monday on her first analyst conference call.

HP is still digesting its $10 billion acquisition of Autonomy, a commercial software company, which was heavily criticized because it commanded so much of HP’s market value in exchange for a gain of about a billion dollars in revenue. That’s a small amount for a company that generates $127 billion in revenue a year. That acquisition, initiated by previous CEO Leo Apotheker, has now closed.

“No large acquisitions in 2012,” Whitman said. “Nothing the size of Autonomy, and maybe more like sub-$500 million.”

She hedged that by saying, “Software may be the one area that may move in 2012, and we may want to be there.” Whitman said HP has to be sure it fills the hole and HP doesn’t pay too much for it.

“We cannot continue to rely on acquisitions alone at HP,” she said. “It’s just the wrong thing to do. We have a lot of runway with our own internal R&D capability, if we run it right.”

Whitman made the remarks as she explained why HP’s earnings expectations for next year are a lot lower than what Wall Street expected. HP is predicting $4 a share in earnings per share, compared to previous expectations of $4.56 a share. HP is no longer providing revenue guidance because HP is now managing for profitable growth, not revenues.

Whitman said she is cautious about 2012 growth because of the macroeconomic headwinds across all major regions of the world, the flooding in Thailand that will hurt PC sales for two quarters at least, and HP’s own specific issues such as higher R&D spending. She said that HP is also hiring more salespeople than it previously did.

Whitman said that HP was surprised at the weakness in the quarter for consumers buying printing supplies and printers. The disk drive shortage is helping HP in part because those who are building their own servers — Google and Facebook — are not able to do so now because they can’t get drives. They are calling HP to get servers, since HP made strategic purchases of hard drives in early October.

“I think this is going to affect the industry dramatically because it is PCs, servers, and storage,” she said.

Whitman said she was excited about Project Moonshot, a new server design that consume 89 percent less energy, 94 percent less space, and 63 percent less space.

Toni Sacconaghi, an analyst at Sanford Bernstein, challenged Whitman and said it looked like HP was losing considerable market share in various markets. Whitman said the consumer was weak all year. She said in response that HP’s problems are a third HP’s own doing. She said that some customers thought HP was getting out of PCs and so “we did ourselves in right there,” a reference to Apotheker’s plan to spin off the PC business.

“We have to get out of the news cycle and reduce the drama here,” Whitman said.

Cathie Lesjak, chief financial officer, said that HP gained share in printers, servers, and a variety of other markets. Lesjak said that the huge services group faces a big turnaround task, and that may last years rather than quarters. HP will consider letting go of low-margin services business and investing in high-margin services.

“We are making some long term bets here because we just can’t afford to run the company for the short term,” Whitman said. “We are investing for the next decade.”

The opportunities in this new information age are vast, Apotheker said. “Our vision is to provide seamless, secure, context-aware experiences for a connected world,” he added.

He said HP is financially strong, has market leadership in a variety of markets, and, as the world’s largest tech company, has a huge array of businesses and products. HP ships more than 2 printers per second, he said.

“We have market leadership in virtually every category we compete in,” he said.  “HP is strong, but we realize the world is changing around us as well.”

The idea of two separate lives, one professional and one consumer, is over. People have merged those roles in their daily lives. The enterprise requires cloud computing, connectivity, mobility, social media, open standards, and analytics, he said.

“The world is connected, people to people,” he said.”People want information where and when they need it.”

At HP, he said he sees a future that requires a transparent, real-time view of cloud-based business services with lots of interaction with customers, much like IBM said last night in its own strategy announcement dubbed “smarter commerce.” It requires secure information flow across everything.

“Who but HP could provide this?” he asked rhetorically.

The traditional technology infrastructure for companies is one that HP understands intimately, Apotheker said, but it remains too complex. Cloud-based platforms are simpler and more flexible and versatile for consumers, he said, adding that HP has seven of the top 10 largest cloud providers as customers.

The new ecosystem for tech infrastructure should include connected devices, an open cloud marketplace, cloud services, platform services and a hybrid infrastructure that replaces proprietary infrastructure, he said.

The company’s three strategic focuses will be cloud, connectivity and software, he said.