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HP notches second-highest quarter of profit

HP has reported its second-highest quarter of profits over the last two years, led by second-quarter 2010 increases in Windows servers, PCs and storage sales. CEO Mark Hurd led off his remarks to analysts by pointing to sales of the Industry Standard Servers, a product that enjoyed a rebound as recession belts loosened.

"After many customers diverted purchases in 2009, we are seeing strong growth in a number of our businesses," he said.

But the path to growth remains blocked for the Business Critical Servers group of HP, the unit that houses the R&D and planning for HP's Integrity servers. HP's suggested 3000 replacements saw their unit's revenues drop 17 percent from 2009's Q2. The BCS operates inside HP's Enterprise Storage and Servers (ESS) unit.

A brighter outlook came from the ESS's Industry Standard Servers unit, where the ProLiant and Windows solutions have been thriving. HP reported a 54 percent increase in ISS revenues. Storage solutions, and blade server revenues overall for ESS including the Windows solutions, rose to push the unit's total profit to $571 million on $4.5 billion in revenue.

HP added $3.5 billion in overall sales during the quarter ended April 30. Its profits also rose by 25 percent, to $2.9 billion for Q2. HP's Personal Systems Group, where the new acquisition of the Palm WebOS will be deployed, increased revenues by 21 percent. HP started to report "commercial client revenue" for the first time out of PCs, noting a 19 percent increase in purchases of HP's desktop and notebook systems by business.

Hurd said the company achieved this growth while investing in sales coverage as well as R&D," all while "absorbing 3Com. Our enterprise business had solid growth this quarter, fueled by ESS, which grew 31 percent over the prior year."

The CEO said that HP "now has the industry's premier arsenal of hardware, software and global services." The Services business grew only 2 percent in the period, achieving the slight growth through better sales of Infrastructure Technology Outsourcing -- running datacenters for the companies which can budget for HP's service rates. Services contributed operating profits of $1.4 billion of the company's total $2.9 billion, close to one-half of all HP income.

Business Critical Systems sales now have declined in a steady slide to $538 million, less than 2 percent of HP's total revenues. Hurd pointed to blade sales as a revenue growth engine for the full range of enterprise sales rebound. An HP chassis can be agnostic about what kind of blade it accepts, he pointed out, taking on mission-critical, industry-standard, storage and PC blades.

The Palm acquisition of last month is not a factor in HP's estimate of overall revenue growth of 8-9 percent. "HP has not included any revenue associated with the Palm acquisition in its revenue outlook, for either the third quarter or the full year fiscal 2010," the company's earnings release stated.