May 21, 2015
HP disses synergies as Q2 flows downhill
Penetration rates increased for HP's Business Critical Systems in the company's second quarter of 2015, year over year. And the corporation that sold thousands of HP-UX systems from that BCS to HP 3000 migrators reported that it has spent more than $400 million in dis-synergies in the just-finished quarter. Such were the milestones of financial jargon delivered to explain Q2 business. On the strength of profits that met expectations, analysts said the last 90 days of business didn't sink the SS Hewlett-Packard any further.
But the $25.5 billion in sales dropped from last year's Q2, and the revenues fell from the previous quarter as well. HP is selling less -- especially in the enterprise servers it created like Integrity -- and its already spending hundreds of millions to split itself into Enterprise and PC-printer companies. Halfway through the final year when all of that business is under one corporate banner, the company is looking ahead to rising reports as a split-up entity.
"HP is becoming stronger as we head into the second half of our fiscal year and separation in November," said CEO Meg Whitman at this afternoon's analyst briefing. The stock had closed at $33.83 and rose about 40 cents a share in after-hours trading.
The strength of the company, a subject of interest only to the 3000 customers who've chosen HP for migrations, must be measured in more than the price of its stock. HP hopes so, at least, since HPQ is trading in the same middle $30 range of 2011. Whitman has held her job since then, a time when PC pursuits and big-ticket acquisitions were the order of the day.
Now HP is merging with a new sense of focus. Merger and acquisition plays have both negative and positive prospects. Savings come through synergies. Declines come through dis-synergies, something HP wrote off as restructuring and separations costs that totalled more than a half-billion dollars.Revenues flowed downhill in all HP segments tied to systems and devices: PCs, printers, and HP-built enterprise servers. Industry Standard Servers sales rose, and HP is looking forward to the migration of customers from Windows 2003 to 2012 to lift sales of Intel-based products. The sales in Business Critical Systems declined another 15 percent versus Q2 of 2014. Year over year declines in BCS have arrived in steady measure for the last four years. But the Enterprise Group where BCS lives -- a unit that'll be a part of this fall's newly-minted HP Enterprise Corp. -- reported just a $7 million drop in profits. Sales were off $84 million.
Business Critical Systems sales -- all of the revenues from HP-UX, OpenVMS, and NonStop servers, plus allied software -- dropped below $200 million for the first time in Q2. "The team delivered growth in operating profit dollars," said CFO Cathie Lesjak, "by improved gross margin and operating expense management." Selling and working out of BCS is a cost-wary enterprise in 2015.
Superdome X and NonStop X are a pair of server projects that will take those platforms across the HP-built to industry standard divide, and HP says those prospects hold hope for the future of those systems.
The price of a better future for a divided HP is those dis-synergies. One definition of this business term:
- Lower employee productivity during a period of due diligence or arising from the uncertainty of the takeover
- Loss of key employees to competitors
- Underestimating the time and complexity of merger integration, particularly integrating different systems
- Loss of customers who may decide that they wish to reduce the total amount they spend with the two businesses once combined or (worse) switch to a different supplier altogether.
In HP's case, that merger is the classic-line Hewlett-Packard business, enterprise computing, with the realities of competing in 2016 and beyond.
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They do not know how, or simply do not care to, market BCS into corporate IT accounts. This requires salespeople
and salesmanship. It also requires the customer to believe that support will be maintained in the out years. What conclusion would most customers draw about this?
By comparison, ISS are easy sell. Customers believe Microsoft will continue to support Windows.
And maybe software licensing is less costly than on BCS.
Posted by: Tim | May 22, 2015 4:26:39 PM
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