HP CEO Leo Apotheker spoke and took questions for nearly 20 minutes out of a one-hour broadcast on HP's fiscal year 2010 and fourth quarter report yesterday. He delivered some of the best promises and news that an HP 3000 migrator, or anybody still buying HP gear and services, might have heard across 60 minutes. The promise is that HP will be starting up pay increases for employees in annual reviews, a move that will return levels to the salaries received before HP cut compensation 5 percent company-wide and froze increases.
HP's employees were surveyed during 2010 by the company's own measure this year -- and 65 percent said they'd get out of HP if the job market were better. To counter the unrest, HP's going to match 401K contributions as a fixed benefit. E-Award bonuses have broader eligibility and better funding. And a new employee stock ownership program might be approved by shareholders next spring. HP shares would be available for purchase at a 5 percent discount.
Catching up to competitive pay could retain more HP staff, one of the best chances for the company to revive its R&D innovation. What's more, the company will fund bonuses once again, another way to retain those blue-chip creators. The changes are effective immediately. It's not likely that Apotheker had much influence about the timing of these changes, but they could have a lasting lift for a company which maintains about 13 percent of its enterprise operations in proprietary technology business.
The raw numbers on the report -- HP posted record sales of $126 billion for 2010 -- showed more good news for the users of such proprietary products such as HP-UX and Integrity servers. The Business Critical Systems group which manages these products posted its first increase in a half-dozen quarters, reversing slides in sales and profits. Revenue slides at BCS, the smallest part of the Enterprise Servers, Storage and Networking unit (ESS) had been the fly in HP's otherwise admirable reports since 2008. BCS revenues were up 10 percent over those in 2009 Q4. The news was even better on ESS totals for fiscal year 2010. ESS revenues were more than $5 billion, setting a record and a 25 percent increase over Q4 of 2009.
Blade servers contributed a hefty share of the HP enterprise business, a business designation the company used frequently during the call. Revenues for the servers which reside in C3000 and C7000 chassis were up 50 percent for the quarter. HP also attributed the BCS rebound to sales of the new models of Superdome Integrity systems. Multi-million price points for Superdome 2 refreshes are a common level of deal.
Apotheker said he was speaking from Palo Alto HP headquarters, ending talk that he might still be evading Oracle's subpoena in its SAP lawsuit. The overall news of increases in most of HP's business ticked the stock up about $1 a share at today's opening bell. By the day's close, the rise fell back to about a 1.1 percent increase over yesterday's closing price. More important to HP 3000 migrators was the report of a $250 million increase in operating profits for the ESS unit. It's a source which can fund R&D increases which Apotheker said are already underway.
But cost containment will fall into a healthier position for HP futures under Apotheker. "You need to invest to create sustainable operating leverage. And you need to do this on a continuing basis as well. And we will use some of the savings that we generate from our efficiency initiatives, to continue investing in more R&D and into more sales."
Customers, he said, have told him that they're asking for a business partner that has technology and can solve business challenges. In spite of the closed path that HP-UX offers to its customers, Apotheker said that "they want choice, not proprietary lock-ins. Our strategy is to different from our competitors -- ours is to give our customers choice."
On the growth of intellectual property at HP, the IP future looks to be getting its long-overdue revival. But Apotheker said this renovation would be a mix of organic (invented in HP) as well as acquisition innovations. The company may have lost a little of its taste for acquiring firms. Apotheker noted that R&D and sales expenses would grow at a faster rate than sales revenues for all of 2011.
On the subject of returning employee pay to a point that might retain talent, "HP employees want to be rewarded for their performance. I believe in a performance-driven culture, and our employees have been performing. Therefore I am please we will be re-instituting salary increases in fiscal year 2011 as part of our normal annual review process. It's well-deserved.
"We have a secret sauce which we can bring to bear to our advantage," Apotheker said. "We are the only company in this industry that is equally good on the consumer side and on the enterprise side. If we manage -- and we will work very hard to do so -- to leverage the rapid innovation cycle of our consumer side back into the enteprise side, making it more robust and scalable, it will be an immense competitive advantage."
HP Services posted flat numbers for growth of profits and sales for the most recent quarter, as well as yearly totals. The EDS-driven consulting wave has crested, but HP's EVP Ann Livermore talked about product "pull-through" as being a rising bonus of services business. When HP moves in to take on operations or refresh technology, servers with the HP badge, networking and storing, all these get a lift.
Overall the company raised its forecast for 2011 business, predicting about $133 billion in total sales, while its earnings per share will rise to about $5.20 per share, up about 17 percent from the fiscal year just ended. About 4 cents of that profit will come from the just-completed sale of the HP Cupertino campus where HP's enterprise servers are designed and engineered. The work is moving to a "more productive" workplace at the HP Palo Alto HQ campus.
Apotheker said HP is working to do "way more business in emerging markets" even while "technology trends are morphing quickly. Our strength is in our opportunity."