HP Profits After Data Centre Gains, But PC Competition Hurts

Hewlett-Packard posts mostly positive results thanks to sales growth in data centre systems and commercial PCs

Hewlett-Packard has revealed mostly positive quarterly results – welcome news for a company that has been battered by a slowing PC market and instability in the executive ranks.

The pleasing results added some momentum behind CEO Meg Whitman’s multiyear turnaround plan for the tech giant.

Pleasing Progress

However, despite the numbers in some of its enterprise hardware and commercial PC units, HP still saw revenue decline in other businesses and faces a range of challenges as it looks to get back to consistent profitability.

HPmegwhitmanfulllengthIn a conference call with analysts and journalists 26 November, Whitman was optimistic about the direction HP is going, but was cautious when speaking about future hurdles.

“Overall, I’m very pleased with the progress we have made, but we still have a lot of work to do to drive consistent execution and navigate a rapidly shifting marketplace,” she said. “As we enter the third year of our turnaround, we will continue to execute against the improvement areas we outlined at our Securities Analyst Meeting last month, including increasing our commitment to research and development.”

HP is trying to adapt to rapidly shifting market forces, such as mobility, where the company is “making progress on our … strategy, but we still have not broken through,” Whitman said. The vendor also has to deal with a rapidly changing competitive landscape where rivals like Dell and Cisco Systems are looking to extend through reach throughout the data centre, and to ensure it executes against its plans, she said.

“For example, we need to do more work to fix our go-to-market strategy in enterprise group, particularly in channel engagement and pricing,” Whitman said.

Financial Results

For the fiscal fourth quarter, HP posted income of $1.4 billion (£863m), which was a significant improvement over the $8.9 billion (£5.5bn) loss, much of which was created by an $8.8 billion (£5.4bn) charge against its acquisition of software maker Autonomy.

Revenues meanwhile hit $29.1 billion (£17.9bn), but this was a 3 percent drop over the same period in 2012.

HP saw strength in its corporate businesses, with the Enterprise Group – which includes servers, storage appliances and networking – growing revenues by 2 percent, the first time it saw growth in eight quarters. That included x86-based servers, where sales jumped 10 percent, networking revenue grew 3 percent and storage revenue 1 percent. However, Whitman said that server sales were driven by several key wins in the hyperscale data centre arena, and that the company may not be able to rely on such wins in the upcoming quarter.

Matthew Bowden, research analyst with Technology Business Research (TBR), in a research note, also attributed HP’s x86 server growth to the company’s “successful efforts to shield its customer base from rival Dell’s strategy to expand its x86 market share through low pricing.”

Revenue in the Business Critical Systems unit – which includes its high-end Itanium-based Integrity and NonStop systems – continued to fall, this time by 17 percent, reflecting an overall decline in the larger worldwide Unix server space.