Set up an HP 3000 Secure Web Console
A new commando takes up collaboration

HP's servers finally star in a quarter

HP released its fourth quarter 2005 results yesterday, numbers which finally included some balance in the company's profit picture. After many years of watching the company's printers dominate HP profitability, the unit that makes HP's 3000 replacements tripled its profits. Other HP units generated black ink on a basis not seen in many quarters.

That Unix-and-Windows-selling Enterprise Storage and Servers business racked up $405 million in profits, a reflection of CEO Mark Hurd's promise to "double down" on this core business in the quarters to come. After investments in many consumer products and a misguided chase of Dell-like, low-profit revenue numbers in PCs, it appears HP is righting its business mix ship.

That said, Printers and Imaging still led the HP profit picture for the quarter as well as fiscal 2005 totals. Printers had operating profit of $896 million, off nearly 20 percent from last years' Q4. Services, still collecting revenues from HP 3000 sites who purchase HP support, notched $322 million in profits, followed by PC's $200 million and HP Software's $27 million. Doing the math on the totals shows that printers contributed less than half of the operating profits — just — for the first time in years at HP.

Investors bought the company stock up to above $30 a share in after-hours trading, a mark that HP's stock hasn't seen in more than four years — roughly the period since HP decided to purchase Compaq.

There were some troublesome elements to the company's report, overall. Business Critical Servers, the part of Enterprise Storage and Servers that includes HP's Unix systems, showed a revenue decline of 1 percent. Printers had their profits flagging at the same time that Dell's printers won a customer satisfaction survey over the HP products.

One job in ten at the company has been emptied, although it's hard to say what the net effect is because HP is also hiring at the same time. HP has now laid off (or in the 3000 group's case, "Enhanced Early Retired") some 15,300 employees, more than the 14,500 forecast by Hurd in July. And the CEO was proud of the fact that "We're tighter with a buck" than ever, a business strategy that can't be sustained if it wants to play in low-profit places like printers and TVs and consumer PCs. For one thing, separating that many people from HP cost the company more than $1.6 billion in Q4; the company took a total $1.1 billion charge for "restructuring-related costs and amortization of intangible assets."

The total numbers for HP's quarter set a record for sales, though, and the company revenue growth rose 7 percent. That charge notwithstanding, HP beat the analyst profit predictions by 5 cents a share. But watching the company put more wood behind its enterprise arrow might be comforting to the HP 3000 customer who wants to remain an HP customer, betting on the long-term future of Itanium systems and the longevity of HP-UX development.

HP sold $86.6 billion of services, computer equipment and software in the fiscal year that ended Oct. 31. The company totalled a profit of $2.39 billion — down from last year's $3.49 billion. Enterprise Storage and Servers contributed $810 million of the 2005 operating profits, outperforming the Personal Systems consumer PC group in profits by 23 percent. Perhaps a full year of focus on the higher-profit enterprise business can improve those totals for fiscal 2006.