Sporkman
November 26th, 2007, 03:45 PM
Link (http://www.marketwatch.com/news/story/h-p-banking-heavy-server-side/story.aspx?guid=%7b76E7C721-443F-4CD5-91E8-7D8F606297EA%7d&siteid=yhoof&print=true&dist=printTop)
H-Ps strength in servers, not PCs
Servers and software lines overtake profitability of printer group
By Therese Poletti, MarketWatch
Last Update: 1:59 PM ET Nov 23, 2007
SAN FRANCISCO (MarketWatch) -- Most reports on Hewlett-Packard's fourth quarter earnings this week focused on the stunning growth in its personal computer business, which again surpassed its cash-cow printing business in total revenues.
But the high-tech giant's recent quarter also included a little-noticed fact about its corporate systems, software and storage business. The Palo Alto company's combined big systems group was more profitable in the fourth quarter than HP's core printer business, which is usually its bread and butter, generating the top profits for the company.
Printing and imaging still surpassed all of HP's other businesses as its biggest profit center for the full 2007 fiscal year, with $4.3 billion in earnings from operations. Investors like to joke that HP's ink business, which generates huge profit margins, prints money.
But the server and storage group, known in HP-speak as its technology solutions group, or TSG, earned $4.1 billion in operating profits for the year. For the fourth quarter, the group had earnings from operations of $1.4 billion, up 27% from the previous year. Printing and imaging on the other hand, saw profits of $1.09 billion, up only slightly from the previous year.
Most of the attention being paid to H-P these days is focused on the company's resurgent PC business, which has trounced rival Dell and claimed the No. 1 spot worldwide in PCs for more than a year.
For the technology solutions group to become the company's biggest profit center was no small task. For those of us who have been following HP even before current CEO Mark Hurd joined the company, it is a pretty impressive turnaround.
Officials at the Palo Alto computer and printer giant, which is now bigger than IBM Corp., were so proud of the results in TSG this quarter that they put Ann Livermore, who heads up that group, on the phone.
"It's a combination of lowering our cost structure, managing our acquisitions and execution," Livermore said of the group's improved operating results.
In previous years, this business group had been H-P's most troubled. While there was talk of spinning off personal computers, some also questioned the company's server business, which includes a hodge-podge of product lines from a series of mergers: products from Compaq, Digital Equipment and Tandem Computers are now all under the same H-P roof.
Before Hurd took over in April 2005, H-P's server business surprised Wall Street in August, 2004 with an unexpected loss in its fiscal third quarter. Former CEO Carly Fiorina blamed new software transition problems and issues in Europe. Three high-ranking sales executives were fired, but some on Wall Street began to speculate that H-P's mega-merger with Compaq in 2003 was a possible cause, because the roots of the problem seemed to be in operations.
The company was also not doing well selling lower-end servers, known as industry standard servers, which are boxes to run computer networks with commodity chips from Intel Corp. and Advanced Micro Devices. That was one of the motivators behind the Compaq deal -- which became the company's most controversial acquisition and helped contribute to Fiorina's hasty departure.
It now appears that the company has managed to absorb the Compaq commodity server business, which reported $3.0 billion in revenues in the fourth quarter, up from $2.7 billion a year ago. A huge boost came from its blades, skinny servers in racks that run data centers. Blade revenues jumped 78%.
H-P's software business -- another component of the TSG group -- had been losing money since it started to report separately in fiscal 2003. It had its first yearly profit from operations in fiscal 2006 of $85 million.
This year, software profits quadrupled to $347 million, partially due to last year's acquisition of Mercury Interactive, H-P's biggest deal since Compaq. Software revenues grew $1 billion this year amid the company's quest to turn software into a growth engine.
It has also sought some of that growth through acquisitions, focusing in its most recent deals on data center automation and security. Toni Sacconaghi of Bernstein Research said in a report that Mercury added the biggest chunk, with an estimated $900 million in revenues for the full year 2007.
Livermore said that H-P will keep looking to do deals, but she declined to give any specifics, other than to say that the company will continue its focus on data center automation, security and systems management.
H-P's sprawling big systems unit, which came under severe fire just a few years ago, has achieved a tough feat. It continues to service the older systems, with plans to phase them out, and is also developing and buying new products to reduce the labor costs of data centers.
Livermore and her team deserve some kudos, along with Hurd. It will be interesting to see if they can keep it up, especially amid any kind of technology spending slowdown. But under Hurd, the new H-P does not seem to be resting on its laurels.
H-Ps strength in servers, not PCs
Servers and software lines overtake profitability of printer group
By Therese Poletti, MarketWatch
Last Update: 1:59 PM ET Nov 23, 2007
SAN FRANCISCO (MarketWatch) -- Most reports on Hewlett-Packard's fourth quarter earnings this week focused on the stunning growth in its personal computer business, which again surpassed its cash-cow printing business in total revenues.
But the high-tech giant's recent quarter also included a little-noticed fact about its corporate systems, software and storage business. The Palo Alto company's combined big systems group was more profitable in the fourth quarter than HP's core printer business, which is usually its bread and butter, generating the top profits for the company.
Printing and imaging still surpassed all of HP's other businesses as its biggest profit center for the full 2007 fiscal year, with $4.3 billion in earnings from operations. Investors like to joke that HP's ink business, which generates huge profit margins, prints money.
But the server and storage group, known in HP-speak as its technology solutions group, or TSG, earned $4.1 billion in operating profits for the year. For the fourth quarter, the group had earnings from operations of $1.4 billion, up 27% from the previous year. Printing and imaging on the other hand, saw profits of $1.09 billion, up only slightly from the previous year.
Most of the attention being paid to H-P these days is focused on the company's resurgent PC business, which has trounced rival Dell and claimed the No. 1 spot worldwide in PCs for more than a year.
For the technology solutions group to become the company's biggest profit center was no small task. For those of us who have been following HP even before current CEO Mark Hurd joined the company, it is a pretty impressive turnaround.
Officials at the Palo Alto computer and printer giant, which is now bigger than IBM Corp., were so proud of the results in TSG this quarter that they put Ann Livermore, who heads up that group, on the phone.
"It's a combination of lowering our cost structure, managing our acquisitions and execution," Livermore said of the group's improved operating results.
In previous years, this business group had been H-P's most troubled. While there was talk of spinning off personal computers, some also questioned the company's server business, which includes a hodge-podge of product lines from a series of mergers: products from Compaq, Digital Equipment and Tandem Computers are now all under the same H-P roof.
Before Hurd took over in April 2005, H-P's server business surprised Wall Street in August, 2004 with an unexpected loss in its fiscal third quarter. Former CEO Carly Fiorina blamed new software transition problems and issues in Europe. Three high-ranking sales executives were fired, but some on Wall Street began to speculate that H-P's mega-merger with Compaq in 2003 was a possible cause, because the roots of the problem seemed to be in operations.
The company was also not doing well selling lower-end servers, known as industry standard servers, which are boxes to run computer networks with commodity chips from Intel Corp. and Advanced Micro Devices. That was one of the motivators behind the Compaq deal -- which became the company's most controversial acquisition and helped contribute to Fiorina's hasty departure.
It now appears that the company has managed to absorb the Compaq commodity server business, which reported $3.0 billion in revenues in the fourth quarter, up from $2.7 billion a year ago. A huge boost came from its blades, skinny servers in racks that run data centers. Blade revenues jumped 78%.
H-P's software business -- another component of the TSG group -- had been losing money since it started to report separately in fiscal 2003. It had its first yearly profit from operations in fiscal 2006 of $85 million.
This year, software profits quadrupled to $347 million, partially due to last year's acquisition of Mercury Interactive, H-P's biggest deal since Compaq. Software revenues grew $1 billion this year amid the company's quest to turn software into a growth engine.
It has also sought some of that growth through acquisitions, focusing in its most recent deals on data center automation and security. Toni Sacconaghi of Bernstein Research said in a report that Mercury added the biggest chunk, with an estimated $900 million in revenues for the full year 2007.
Livermore said that H-P will keep looking to do deals, but she declined to give any specifics, other than to say that the company will continue its focus on data center automation, security and systems management.
H-P's sprawling big systems unit, which came under severe fire just a few years ago, has achieved a tough feat. It continues to service the older systems, with plans to phase them out, and is also developing and buying new products to reduce the labor costs of data centers.
Livermore and her team deserve some kudos, along with Hurd. It will be interesting to see if they can keep it up, especially amid any kind of technology spending slowdown. But under Hurd, the new H-P does not seem to be resting on its laurels.