Two years on, Interex still being sold off
Programs off limits, without passwords

HP's quarter posts strong enterprise marks

Third quarter results surfaced from HP yesterday, numbers that showed the company is selling more enterprise servers than ever — much of it in Windows-based blades — while leaving Dell in the rear-view mirror in HP's thriving personal computer segment.

Q3_results_overview The figures released after the close of the markets on Thursday showed an Enterprise Storage and Servers (ESS) unit performing better than ever, raising its profits for a quarter that's traditionally HP's weakest. ESS earned 18 percent of HP's $25.3 billion Q3 revenues, outpacing sales in HP Services  — which include support for the HP 3000 as well as all other HP products.

Profits were strong from the ESS group, almost three times higher in dollars than the same quarter in 2006. Printer and Imaging (IPG) revenues and profits still lead HP's revenues and earnings; supplies (ink and paper) continue to make up more than half of the $981 million IPG profits in Q3. But profits were flat in printers compared to 2006's Q3.

Ess_q3 However strong those overall ESS numbers appeared, the results from Business Critical Systems (BCS)  — home of the HP Integrity offerings — showed weaker performance. Hewlett-Packard continues to weather the loss of sales from its PA-RISC and Alpha servers, while Integrity has taken over the majority of BCS sales. The numbers indicate that while Integrity sales are stronger than ever — now 67 percent of BCS sales, and up 71 percent from last year's Q3 — the Integrity numbers are not yet making up for lost sales of PA-RISC solutions. HP said in its conference call with analysts last night:

Business Critical Systems revenue decreased 3 percent year over year. Integrity server revenue grew 71 percent and represented 67 percent of  Business Critical revenue, up from 38 percent in the prior-year period. Integrity momentum was offset by ongoing declines in PA-RISC  and Alpha.

HP added that the ESS margins grew because of petroleum prices, warranty improvements, pricing discipline and "our ability to align our cost structure investments to deliver the next-generation datacenter to our customers."

HP predicts it will finish fiscal 2007 on Oct. 31 with about $103 billion in yearly sales and a strong $2.67 per share profit. But CEO Mark Hurd, while stressing that the company had a strong Q3 across the portfolio, told analysts there's much work to do to get HP's Enterprise business performing better.

I want to make sure you are clear -- we still have significant  investments and opportunities ahead of us. The initial results of our Enterprise sales force deployment are encouraging. However, we’re still not adequately covering this segment, and we will be adding additional feet on the street to expand our share of wallet.

HP also plans to keep reducing its workforce to maintain profits. "We will need to take the necessary actions, which include incremental workforce reductions, to lower our cost structure," Hurd said. "I’m pleased with our progress, but as a company, we still have plenty of work ahead."

Analysts offered praise for the Q3 results. "[HP] is ahead of some of [its] plans were laid out at Analyst Day [in June]," said Harry Blount  of Lehman Brothers.

HP's Software group shows the strongest potential for growth overall for the company. This is the segment where HP recently announced its plans to acquire Opsware and Neoview. Hurd explained how those purchases — for a total of almost $2 billion — will expand the offerings for the 3000 customers who move to the HP-UX solutions.

Opsware helps us a lot in the automation space. Management, we feel  is very good with the integration of OpenView and Mercury.  Think of  us as really maturing, we think, our management suite of capability. Maturing in automation  -- what Opsware really gave us was not only server management and storage management pillars, but also gave us the workflow run book that really moves across the pillars.

So you typically see network automation, storage automation, server automation, and then there is really this workflow that connects those capabilities. And Opsware is the world leader at doing that and has  done a great job.

Stock_repurchase HP also has made its strongest effort in more than five years to repurchase its own stock, buying $8.8 million so far in 2007 with its cash. Hurd said at the conference that "We believe that we have got plenty of cash. And I think we have been pretty public about the fact that we are willing to go  down in cash and to do the right things for the Company." HP's shares were up by $1.16 (2.5 percent) on the morning after the quarterly results.