By Poornima Gupta
SAN JOSE (Reuters) - Hewlett Packard Co Chief Executive Meg Whitman expects revenue to stabilize in 2014 with "pockets of growth" before the business accelerates again in 2015, sending the stock up as much as 9.5 percent on Wednesday.
Whitman's comments to analysts at an annual investor briefing eased Wall Street's concerns about her multiyear turnaround program. They helped the shares recoup some of their 20 percent loss since August, when the CEO warned that growth in 2014 would be unlikely.
HP's shares were up about 8.6 percent at $22.53 at mid-afternoon. That is still down from $25.38 in mid-August, just before Whitman delivered her warning.
"Fiscal 2014 will be a pivotal year," she told analysts gathered in San Jose. "In fiscal 2015, you can still expect to see acceleration, and in fiscal 2016, an industry-leading company."
In 2014, "we expect total revenue to stabilize and start driving new pockets of growth."
On Wednesday, the company forecast earnings per share on a non-GAAP basis of $3.55 to $3.75 for fiscal 2014 - roughly in line with Wall Street's expectation for $3.63. The revenue decline will slow from 2013's pace, it added in a statement.
More than $3 billion will be earmarked for research and development, it said.
There has also been progress generating cash flow and stabilizing some parts of HP's business such as Enterprise Services, Whitman said. The company generated a total of about $7 billion in free cash flow through the fiscal third quarter of 2013, she said.
HP expects to generate free cash flow of $6 billion to $6.5 billion next year. At least half of that will be returned to shareholders through dividends and share buybacks.
"Most of the comments were about growth opportunities rather than fixing holes in the ship," said Patrick Moorhead, analyst at Moor Insights & Strategy, who attended the presentation. "Investors like that."
Moorhead said some of the core fundamentals have also been stabilized.
"Services and software were the problem children last year," he added.
Whitman, who took the helm of HP in 2011 after a failed bid to become governor of California, inherited a company ravaged by board shake-ups and executive departures, and a bureaucracy unable to respond quickly enough to changes in the industry.
If HP's stock maintains its gains on Wednesday, the shares would mark their biggest single-day climb since May.
"MANIACAL FOCUS" ON CLIENTS
Two years into what she has always described as a five-year effort, sales and profits are still sliding, and Wall Street is concerned Whitman may be running out of time. The stock has fallen 17 percent in the past three months and lost more than half its value since 2010.
Whitman said that when she joined HP, operations were in disarray, with the sales team lacking modern tools and an information-technology infrastructure.
While HP's massive but stagnant printer division has made money, the personal computer business has been contracting as more customers switch to tablets and mobile devices. Whitman wants to turn HP into a major player in the corporate technology services market, now dominated by Oracle Corp, International Business Machines Corp and Cisco Systems Inc.
"This time last year I was feeling HP was falling dangerously behind," Whitman said. "Our business units lacked a clear, crisp integrated strategy. Our innovation pipeline was there but wasn't being commercialized."
"In 2013 we started to change that," she added. "Our multiyear journey continues. I am comfortable with the progress we are making."
Whitman, who has been known to take a hands-on approach with corporate customer, stressed again the need for a "maniacal focus" on engaging and listening to clients.
"This year alone I met with close to 1,000 customers and partners," Whitman said.
Underscoring the shifting IT landscape, Whitman acknowledged that HP's traditional profitable segments - such as printing and PCs - were in decline and the company is in the process of transitioning to growing sectors such as storage, networking and other services to corporations.
"Over time these will become bigger revenue businesses and will overtake the declining businesses," she said.
(Editing by Jeffrey Benkoe, Phil Berlowitz and Edwin Chan; )