Overseas business bolsters HP Q2
May 20, 2008
HP products are popular the world over. It's a good thing, too, because the company's growth in the quarter ended April 30 relied almost entirely on overseas sales.
The mix of growth and profit in Q2 of 2008 was just one of several notable changes to HP's financials, released in full detail today in a conference call with investors. US-based sales growth was nearly flat at 2 percent, a number that prompted one analyst to call the rise "the lowest rate growth we've seen in more than three years in the US."
What's more, HP's growth of profits was flat from its lucrative printer and imaging group — the sector that generates more than half of HP's earnings on the strength of ink and paper supplies which complement printers and cameras. The business changes explain why now is the best time to take on the 144,000 employees in the EDS services company, along with its $22 billion in business. HP will buy the company for $13.3 billion, pending shareholder and regulators' approval.
The challenge in the acquisition lies in making EDS profitable once more to grow HP's earnings. Reducing expenses still takes a major role in keeping earnings up. CEO Mark Hurd vowed today to continue cost cuts at the vendor which sells alternatives to the HP 3000 for migrating customers. He may have better prospects of selling services, software and the servers outside the US; 70 percent of HP revenue now comes from overseas.
HP's overall Q2 numbers were impressive, posting a 26 percent increase in profits and 11 percent growth in revenue. The company rolled up its highest sales total in history for the period at $28.2 billion to fuel profits of $2 billion during the period.
Enterprise Storage and Servers, the group which makes the HP Integrity and HP Windows enterprise servers and allied storage, saw sales fall by $450 million from last quarter, but stay about $180 million ahead of Q2 of 2007. Services continued to grow its revenues and profits both from the prior quarter and year over year, and HP Software also posted gains in in sales and earnings. Hurd said the company wants to make a bigger part of its business footprint from its steps into these non-system solutions.
"Software and services are a strategic thing for us," he told analysts. HP Services controls the fate of the Hewlett-Packard lifespan in the HP 3000 community. The group is the only recipient of revenue from all HP 3000 sites, whether migrating or homesteading. But the revenue contributions are a tiny part of the overall HP picture, however profitable the sales are for the vendor.
Imaging and Printing came in at number two in the HP profits report for the second straight quarter, being overtaken by the Technology Solutions Group, which includes Services, Software, Storage and Servers. Technology services sales, which include support for HP 3000s and HP Unix systems, grew by 10 percent during the last year. Services is now just 35 percent behind sales of all of HP's enterprise servers.
Revenues from the HP Industry Standard Servers, those which do not support the HP-UX operating environment, outstripped the Business Critical Systems 3-to-1 during Q2. HP announced it will end its PA-RISC based server sales in January, switching to an all-Integrity lineup.