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EDS Purchase Helps HP Report Solid Quarter

Jeffrey Burt is a senior editor for eWEEK and contributor to TechWeekEurope

Services delivered a solid quarter for HP, generating $8.9 billion (£5.38bn) in revenue

HP CEO Mark Hurd said the integration of EDS into the company was ahead of schedule, and that HP was able to cut 19,000 jobs in the wake of the EDS purchase in 2008, which helped save on the bottom line. Overall, HP generated $2.4 billion (£1.45bn) in profit on $30.8 billion (£18.6bn) in revenue.

Hewlett-Packard reported solid quarterly numbers on the strength of its services business and it cost-control efforts, including the elimination of 19,000 jobs in the wake of merging EDS into the company.

HP on 23 November said revenue for its fiscal year fourth quarter 2009 came in at $30.8 billion (£18.6bn), down 8 percent over the same period last year, but up 12 percent over the third quarter. Income was at $2.4 billion (£1.45bn), a jump from $2.1 billion (£1.27bn) in the fourth quarter 2008.

In a conference call with analyst and reporters, Chairman and CEO Mark Hurd said the economy continues to show signs of improvement, but that it remains “challenging.” However, “we do see encouraging signs of recovery,” Hurd said.

Services was a focus of his presentation. HP bought EDS for $13.9 billion (£8.4bn) in May 2008, and Hurd said the integration of the company was ahead of schedule. In September, HP changed the name of its EDS unit to HP Enterprise Services.

In the quarter, HP’s services business generated $8.9 billion (£5.4bn), up 8 percent over the same period last year. He said that with the integration within HP and the shedding of costs, HP’s Enterprise Services is “now a business that can compete and win. We are well-positioned to grow.”

Services is becoming an increasingly competitive field, with hardware makers looking to diversify by moving away from those low-margin products and expanding into services. Dell bought Perot Systems for $3.9 billion (£2.4bn) in September, and Xerox followed later in the month with the $6.4 billion (£3.9bn) acquisition of Affiliated Computer Services.

HP, the world’s top PC maker, saw shipments of its computers grow by 8 percent over the same quarter last year, but revenue drop 12 percent. Hurd said HP was seeing an uptick in demand, both among consumers and enterprises. HP’s earnings release came ours after analyst firm Gartner said that the overall PC market—led by the notebooks segment—was positioned to grow during the current quarter, though low prices will drive down revenues. A key driver for demand will be Microsoft’s new Windows 7 operating system.

Officials with Dell, the third largest global PC vendor, said on 19 November that they’re also expecting Windows 7 to drive up sales.

Its Enterprise Storage and Servers unit saw revenue drop 17 percent, with storage revenue falling 20 percent, industry-standard server revenue dropping 10 percent and its high-end server business declining 33 percent.

HP’s printer business saw revenue drop 15 percent to $6.5 billion (£3.9bn), though profits stayed steady at $1.2 billion (£727m).

Hurd said there were encouraging signs in the economy, including a solid uptick in business in both the United States and China, two markets that combine to bring in about 40 percent of all HP revenues. Europe is still a struggling market, he said.

The planned $2.7 billion (£1.6bn) acquisition of networking equipment vendor 3Com will help increase HP’s reach in China, as well as bolster HP’s ProCurve networking business against Cisco Systems and grow its networking security offerings.

HP expects to bring in between $29.6 billion (£17.9bn) and $29.9 billion (£18.1bn) in its fiscal year 2010 first quarter, and between $118 billion (£71.5bn) and $119 billion (£72.1bn) for the entire 2010 fiscal year.