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The taxman makes HP more profitable

Customers casting their future lots with HP have more to smile about today; the vendor said it's raised its second quarter profits by $443 million. A favorable settlement with the Internal Revenue Service (IRS)  — not Advant's we've been reporting on for our past five entries, including yesterday's podcast — led to HP's increased earnings. The IRS was auditing HP returns of seven to nine years ago. Now that's the kind of audit outcome most companies would like to have.

A profitable vendor is important to customers, especially those using a non-standard operating environment or a unique processor family. HP-UX users qualify on both counts, since Linux is much more of a standard than anybody's specific flavor of Unix — and the Itanium design has been a bust as far as widespread vendor adoption that could make it a standard.

HP 3000 customers who are migrating to HP's Unix solutions want a more profitable HP. One strategy is that a vendor with good profits can afford to run businesses outside the mainstream. HP 3000 customers might have caught some of the fallout of an HP scrabbling for revenue growth in 2001. "If it ain't growin', it's goin' " was the rumored mantra among then-CEO Carly Fiorina's top managers. The 3000, pushing along at little to modest growth, was a target.

HP-UX customers are further from that fate with an HP which is robust financially. Nothing lasts forever, but the 3000 customers moving to another HP platform don't want to re-migrate to something else if HP's fortunes turn toward those bad $16-a-share days of Carly's reign.

As of mid-day after the extra-profits announcement, HP's stock remained above $30 a share. HP earned almost $1.5 billion in profits for the second quarter.

HP reported a 51 percent jump in net income and close to 5 percent in revenue increases for its fiscal 2006 second quarter. While those results were driven primarily by restructuring efforts and higher profitability across businesses, the causes don't matter much to the prospective HP-UX customer. They just want the vendor to continue investment in the operating environment and Integrity servers running Itanium chips.