Frz germany and the euro szone i at a fresh year twoyear. Hp ceo, shares of the dow component under pressure after last nights earnings. What could turn hp around in just a few minutes. Retailer abercrombie and fitch getting hammered in the premarket. Ceo says young consumers are not recovering. Sears is coming in weak. K mart down more than 2 . And one point for marissa mayer. Yahoo beating google in u. S. Web rankings. Weve got the details coming up. But well start with hp. Stock down in the premarket as the tech giant reports 8 drop in revenue in Third Quarter thanks to problems in pcs. Servers and other businesses. Company also announcing some changes to the top management. Replacing the executive who had been in charge of its struggling Enterprise Group. So many questions, jim, for meg. Where are you going to begin . Im going start with have we regressed . We had a fiveyear turn around plan. Shes doing very, very well. Remember, the stock was right about here when we came in. Stock came up. Up 78 for the year. Have we got it so the fact that even though cash is still building, the turn around is off track or is it just delayed because ive got the tell you, carl, there were a lot of questions to be asked about what happened since may when she said revenues will be up. Yeah. Having to back off of that promise of Revenue Growth in 2014 does sort of add to the feeling that theyre in retreat somehow. And even if it werent about execution, the weak macro is just not helping. Yeah. I mean, look, i think execution meg wittman does not want to tolerate a down 9 on Enterprise Services when the emc vm, tearing the cover off the ball. Huge computer company. Personal systems just gigantic. Printing very big. Personal computers now 22 . The inside of the pc has not come down in cost. Drivers are more expensive. Flashes are expensive for the smaller pcs. They dont have social. They dont have mobile. Theyre trying to be in cloud. Have they missed the snark k. They catch up . I dont know. Its going to be a critical interview from that standpoint. You mentioned pc sales down 11 . Opper net down. Printers are good. Which she likes to use a a macro metric like in europe. Stock, 20 in three months. It says if people forgot they were in the same business as some of their challenged rivals like dell. Im glad you mentioned dell because dell has been cutting price furiously. Maybe its because they want to show a different level of earnings power and once they become private, the possibility that maybe dell will relent on incredible price decline for pcs. This is a company that is i dont want to portray it as where should it be. Its going to be able to earn 350 to 380 next year. Its no a disaster on earnings. Paying down debt. They had nice operating cash flow. But growth is the magic elixir of what we want. When ibm didnt have growth we decided to send it down. Microsoft didnt show growth, we sent that down. They need growth. She has to do it by acquisition. She cant cut her way into growth. Again, that interview in a few moments after the break. In the meantime, retail decli r decliners. Sears, wider than expected loss as sales at k mart and other stores do weaken. Area control by missing Second Quarter estimates. Weakness in girls clothing. Abercrombie giving a forecast below expectations. They did not warn ahead of time, like aeropostale did. Im searching for a period when apparel was this bad in this country. When i go over the quarters, what sticks out at you, whether it be saks, nordstrom, macys, target, something happened. Its almost as if they all decided to go to the thrift shop. Either that or were buying everything on amazon. Yeah. Apparel has stopped in this country. Ive never seen this. People are always willing to spend on nice clothes. They stopped. Now, you could say thats because theyre now remod dling their bathrooms, fixing their kitch kitchens. That would be the call on home depot and lowes. William sonoma was higher today. But clothes . Wow, i mean, just no sells. Unbelievable. The stock on abercrombie down 18 this morning. Shocking. Ninemonth low. On the call this morning Mike Jeffries almost doesnt seem to know whats happening. He says were not clear why the weakness is the way it is. You would think some of the income metrics in this country doesnt affect teens as much as other people. No. I think his execution is horrible in a world where it wouldnt matter you executed well. They are saying this has become a very, very difficult market. When i saw nordstroms didnt deliver the number, that was the wakeup call, wow, this is a quarter where no ones buying dresses. Well, maybe no ones buying anything chic, either. Amf is a disaster. Samestore sales down ten. Margins were up 1. 6 points. Kind of gets lost in the shuffle, though, doesnt it . I feel like when you look at what jcpenney was able to accomplish this quarter. My hats off to jeff. He didnt destroy the franchise. Im very concerned about whats happening in this country. Jeffries in the call says were in the business that has ups and downsnd were clearly in a down. No way around it. You cant wear a sink and you cant wear a toilet. Not sharkespeare. When we come back, meg wittman will join us live in her first and only interview following the Quarterly Results last night. Take one more look at futures trying to look at the bright side after some pretty good pmis. Weve got a long way to go today. A lot more squawk on the street live from post nine when we come back. Make it happen with the allnew fidelity active trader pro. Its one more innovative reason serious investors are choosing fidelity. Get 200 free trades when you start using active trader pro today. Hewlettpackard shares are under pressure. Meg whitman says hewlettpackard does not expect to see growth during the next year. Meg, good morning. Thank you for coming on. Good morning. Thank you for having me. Okay. Lets get right to it. Where are we now after this reset button in the fiveyear term that you projected when you came in two years ago . Well, i think were right on track. Two years into a fiveyear turn around. As you might expect, there are businesses that are doing quite well. Theres a couple of businesses that havent quite turned the corner yet. Over all, i would say were on track. Weve got a lot of heavy lifting ahead but feel good about where we are. Meg, what happened since last may when you guided the revenues would be up . Whats changed . What i said in may is i still thought Revenue Growth was possible in 2014. But really a couple of things have changed. First of all, our Enterprise Group performance in q3 was not up to our expectations. We said it was a disappointing quarter for the Enterprise Group. Industry standards servers are under tremendous pricing pressure in the marketmarketpla. We had execution problems. And pc market has not really stabilized. This pc business is still headed down. And the market is still contracting. Even idc, you know, lowered their estimates last week or the week before. And then this is a little counter intuitive. Our Enterprise Services business is doing better than we thought this year, which makes growth a bit harder next year. Its good that you had in printers. The new units were up. One of the things that concerned me when we spoke last night we talked about the great turn arounds. Talked about how Howard Schultz came back in and was able to turn starbucks around but they had the wind at their back. When he came in ibm in 1993 the company was hurting. Both cash and product. He managed to turn around it around by introducing a whole new company. What can you do that is analogous to what he did to turn around hewlettpackard for the long term . Well, i take a lot of inspiration from that ibm turn around. But the situation is quite different. You recall ibm was months from running out of cash and not being able to make payroll. We generated a tremendous amount of cash in q3 alone. We thought this year we might generate 5 billion in cash for the whole year. Already weve generated about 7. 2 billion. So and we are a profitable, healthy financial company. Were now down to a zero and almost a zero net debt position on the operating company. But weve got a set of businesses, some are declining due to industry shifts. Some are flat and some are growing and what we have to do is align all of our resources, rnd, sales, against those growth areas so we can migrate away from those declining businesses to the growing businesses so we can capitalize on this new style of i. T. Whether thats cloud or big data or security or our moon shot product which i think has the opportunity to revolutionize servers or three par which is a whole new much more cost effective, simplified architecture for storage. Weve got a lot of great things in the portfolio and we have to accelerate the growth of those great products. Meg, its carl. Youve said this is going to be a long turn around from the getgo and clearly people understand that. But when you talk about the things that have changed, when you tell jim about execution in enterprise, dont you feel like youre going to have to extend the window of this turn around and will you be around for all of it . I dont think we have to extend the window. I mean, the reason i said five years is thats what i thought. I didnt say five because i thought it was three. When you do turn arounds there are bumps in the road. There are ups. There are downs. These things are not usually linear. Particularly at a company of hps scale and breadth. But we are really making some fundamental changes here that are going to position us better for the long term. I didnt come for this year or this year. I came for the long haul to reposition hp in the industry as an icon anything company that it deserves to be. Weve made a lot of progress. You can see it in our people. You can see it in our customers feel much more optimistic about hp. A lot of good sign posts along the way, for sure. You mentioned, meg, that you see it in your people and yet you did make some personnel changes. What are some of your executives doing wrong to make it so that other Companies Like emc, seem to be making inroads in your business or lenovo who passed you as a pc maker . My job as a ceo is to make the right people in the right job at the right time. You know, situational leadership is so important because some sometimes businesses require a different set of leadership skills this year than even last year. And so what im focused on with our two infrastructure businesses is we need a cost position competitive with other manufacturers, with companies. We have to have best in class go to market and r d pipeline thats going to churn products like our Net Generation of Data Center Networking and software define networking. Thats what were working on. I think bill who we just asked to run the Enterprise Group is going to fix some of our execution issues and hes a Proven Technology executive that knows a lot about software. And one of the big changes in infrastructure is the Software Layer can be the differentiator for hardware. I think his skill set plus a couple of other people i brought in to assist him, i think you will see this thing turn pretty fast. Meantime, analysts are trying to get their heads around this, meg, ahead of the analyst day in october. Isi is out with a note saying in their view the only catalyst for the company at this stanlth is a breakup and in their words, even the great carl icahn would have trouble creating value here. Are you willing to reconsider, even though youve already reconsidered your strategy, regarding divestitures . I believe that hp has a set of assets that are unique. Were the only company who can go from devices to infrastructure to services and software. And this is a huge point of difference as we can bring a series of assets to bear on some of the big shifts in the market. We have a unique and differentiated Cloud Strategy because we have this breadth of assets at hp. And scale, when you can make it work for you, is a huge advantage. No one has greater reach and scale than hp does. No one has the ability to bring products to market as fast as we do when we work really well together. So theres a lot to be said for hp as it is today. And we aim to prove that out. Obviously in five years if we havent proved that out, maybe there will be a different answer. I feel really strongly this is Better Together and youre going of see us get stronger with cross bu offerings that i think will be differentiated in the marketpla marketplace. Meg, lets look at that because when i look at your product portfolio. I went to the moon shot, terrific video. I dont see anything that is a needle mover right now. At the same time, i look at commercial revenues for personal Systems Holding up. But consumer revenue is down 22 . How do you balance the idea that you dont have that growth. New products could move the needle. But the need to do an acquisition and do an acquisition now. Because our net debt position is approaching zero, we have now the ability to think rethink our Capital Allocation strategy. As you know for most of the two years, the past two years, this was about dividends and increasing them slightly, buying back shares to offset dilution, and then paying down the debt. So now i think acquisitions will become a part of our future to further some of our Strategic Initiatives and shore up some of the product holes in some of our businesses. But really be careful about this because we understand that we have a legacy of some acquisitions that didnt work out very well. So we will be very judicious, very deliberate, make sure they are very strategic and we dont pay too much for these acquisitions. They will become part of our future. Every Big Tech Company has to be able to making a questiing a qu situations. Rest assured we will be very thoughtful about this. Security. I think you ought to beef that up. The ft. Nick kind of thing. Some of the Software Companies that i think do that same kind of mapping and search that autonomy does to augument that. Can you do a 5 billion acquisition with cash now or do you have to wait another 18 months until youre satisfied its low enough that then you can go to the market . Yeah. I think it depends on what the asset is, jim. You know, my view is actually we dont need a five or a 6 billion acquisition. I think there are acquisitions in the 100, 300 million range, 1. 5 billion that we might be interested in. I want to make sure. Listen, there is so much leverage left in optimizing the assets that hp has. I want to be very selective here. N. Terms of making sure what we buy will actually accelerate hp. I dont want to do it just to buy growth. I want to do it to further the strategic position in the marketplace for hp. So i think it should be a part of our future but we cannot take our eye off the ball of optimizing the incredible assets that this company has. And youre right about security. Arc site, tipping point, some elements of autonomy, these security business grew double din digits this year. We have a lot of growth engines here. We just have to get everyone dancing in formation and make sure we execute with excellence across the board. Meg, one thing weve been watching for the past few months is dell and to the degree in which they are cutting prices in a share grab. How much of a factor was that in the quarter . It was certainly a factor. There were very aggressive in the marketplace in pricing. And you could see that in your share results and you could also see it in the Earnings Results down over 50 . So theyre very aggressive in the marketplace. And we have to respond to that. We have to cope with that. You know, this is a very competitive market. If its not dell its probably going to be someone else. But well see after they go private. They have traded the Public Market master can which can be challenging from time to time to a private market debt master. And when you have that kind of debt on the company and youve got to meet those capital calls and youve got to the whole game. How fast you can play down that debt, well see what happens. But we are prepared to compete against any comer because our objective is to be the lowest cost, most nimble provider of the valueadded hardware and infrastructure products. In order to do that, meg, youre going up against a company like lenovo which has very low costs. I imagine there has to be another round of targeted layoffs in order to be able to get your headcount down, your labor cost down, switch more to manufacturing that is done obviously by machines because i think your table of employment is too high if youre going to take on a lenovo. Heres whats interesting. Were twothirds of the way through our restructuring which we talked about over a year ago. So there is more labor that will leave hewlettpackard. In the end, actually sourcing and supply chain, you have to look end to end, not only the bill of material cost, what the quality is, what your warranty cost is, your freight, logistics, just in time inventory. One of the things you saw this quarter is how strong our cash flow was. We are doing a much better job of managing inventory which is a real cost when youre in a business like the pc business or the printing business or, frankly, even the lowend server market. So my view is weve got a lot more work to do on supply chain, on logistics, on our Enterprise Group side and then, frankly, we have to make sure that we have the right product for the right market segment, not over designed, not over featured. But the features that are right for that market segment. And those are the two areas that i think weve got a lot of work to do, in addition to our go to market, how we price, how we bundle, our coverage models. Theres a lot of work there that i think will lead to improvement. The good news thats the kind of improvement you can make on a relatively short time frame. One last question, meg. Youve been in politics before. You follow all events. Do you think this whole discussion of tapering is insane given the fact that you go through your whole call and talk about the world slowing, u. S. Slowing. Does it seem nuts to be able to stop easing . Well, listen, you know, the world market