February 27, 2014
Unix-Integrity business keeps falling at HP
Numbers reported by Hewlett-Packard for its just-ended quarter show the company's making something of a rebound in some areas. One analyst said to CEO Meg Whitman that she'd been at the helm of the company for three-and-a-half years, and she had to correct him during the financial briefing last week.
"Actually, I've been here two-and-a-half years," Whitman said. "Sometimes it feels like three-and-a-half, but I've been here two-and-a-half years."
It's been a long 30 months with many changes for the vendor which still offers migration solutions to 3000 customers making a transition. But one thing that hasn't changed a bit is the trajectory of the company's Unix server business. Just as it has over each of the previous six quarters, sales and profits from the Business Critical Systems fell. Once again, the BCS combination of Integrity and HP-UX reported a decline in sales upwards of 15 percent from the prior fiscal year's quarter. This time it was 25 percent lower than Q1 of 2013. That makes 2014 the fourth straight year where BCS numbers have been toted up as lower.
"We continued to see revenue declines in business-critical systems," Whitman said. Only the Enterprise Group servers based on industry standards -- HP calls them ISS, running Windows or Linux -- have been able to stay out of the Unix vortex.
"We do think revenue growth is possible through the remainder of the year on the enterprise [systems] group," Whitman said. "We saw good traction in ISS. We still have a BCS drag on the portfolio, and that's going to continue for the foreseeable future."In a small victory among the runaway slide of HP-UX and Integrity sales, Whitman predicted that HP will pick up two points of market share in the business critical system marketplace.
"Listen, we are turning the enterprise group around," Whitman said. "You can see it in the success in ISS revenues, as well as networking and storage. We've still got more work to do on the margins. When you consider the significant headwind of the declining BCS business, the technology services operating profit performance was strong. Business critical systems continues to be impacted by a declining Unix market. BCS revenue declined 25 percent year-over-year, to $228 million."
As a marker of how small a slice that's become at HP, consider that the profits alone from HP's lending operations were more than $100 million. And the ISS revenues are 15 times higher than Integrity, at $3.2 billion.
Total HP revenues for the quarter were $28.2 billion, down 0.7 percent year-over-year and up 0.3 percent in constant currency. Total profits were HP's been stuck on $28 billion quarters since 2013. Whitman said the company has been in pivot mode "to the new style of intellectual property, around investment in innovation."
I think we've been hard at work on doing a lot of things that are going to position us as this industry continues to go through some very challenging changes. The pace of change and the magnitude of change here is as great as I've seen in my career. I think we're reasonably well positioned take advantage of those changes.
Changes in business are dictating new outlooks for older businesses at HP. It's always been that way at the vendor which cut off its 3000 futures during a post-merger closeout of product lines.
"We have businesses that are declining businesses," Whitman told the analysts, who were sometimes complimentary of where she's leading the company over the two-plus years. "We understand where the declining businesses are, we understand what we need to do with them. We've got businesses that are holding in terms of revenue, and then we've got growth businesses."
What's growing at HP will be getting whatever investment and energy the company can manage. "We have pivoted investment," Whitman said. "We've pivoted people. We've pivoted go-to-market to those growth areas in the company."
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