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May 16, 2007

PC business leads HP's Q2

Strong sales of servers drove HP to a record quarter of revenues in the second fiscal 2007 period. But the server sales were of "industry standard" variety rather than the HP Unix systems. HP's own name for "Windows-based" servers says more than the company might intend about its future in the enterprise.

Even though HP posted its first $25 billion sales quarter in the company's history, the rise in Hewlett-Packard fortunes does not flow from distinctive products. HP 3000 customers might remember a time when computer sales at HP were led by proprietary servers like the HP 9000s and the 3000. For a time in the early 1990s, HP didn't pay enough attention to the enterprise opportunities of Windows.

Nothing could be more different today, especially in light of the latest results. HP's Enterprise, Storage and Servers grew its revenue 8 percent over last year 's Q2, to $4.6 billion. Profits rose by more than 7 percent. But listen to HP explain the ESS sales growth. "We had a strong quarter in industry-standard servers, with revenues up 17 percent year over year, and share gains in every region," said CEO Mark Hurd.

Make no mistake: HP's success in selling Windows-based servers,especially blades, should be applauded. But with Windows as the leading enterprise sale at HP, the company delivers its 3000 customers into waters where the choice of vendor is a minor consideration. Windows is HP's enterprise industry standard, not the operating environment of HP-UX, one that more closely matches the MPE/iX advantages.

Plainly put, HP's Business Critical Systems offerings are losing market share, outshone by the company's success in Windows solutions. Selling an Integrity server is harder this year than last, even though HP now drives more BCS sales than ever into the Intel-based Integrity servers. The company has finally reached its goal of selling more Integrity than PA-RISC or Alpha systems.

BCS revenue decreased 6 percent year over year, but HP waved a flag of confidence. "We continue to see strong Integrity momentum, with revenue growth of 60 percent over the prior-year period," said CEO Mark Hurd. "In the second quarter, Integrity represented 61 percent of business-critical systems revenue, and that is up from 36 percent in the prior-year period. Integrity momentum was offset by ongoing declines in PA-RISC and in Alpha."

One way to interpret those numbers: When a customer cashes in a PA-RISC system, many times the replacement is not HP's Unix server, but a Windows system. When a vendor fails to keep its enterprise customers in the vendor-specific fold, it offers competitors and open source options a way to wrest business out of the HP nest.

HP 3000 customers are choosing Windows to replace their servers when they leave the 3000 platform. Even though these customers are a tiny percentage of HP's overall business, they mirror the problem HP hasn't solved: not enough of its own customer base, those most likely to stay with HP, are choosing an HP-centric solution like HP-UX.

09:52 PM in News Outta HP, Newsmakers | Permalink

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