HP has managed to eke out a penny more than business analysts estimated for its 2013 fourth quarter earnings. These days such a "beat," as the analysts call it, is essential to avoiding a selloff after a report like yesterday's. But the positive news did not extend to the business group which builds and engineers the Unix Integrity servers -- a significant share of the migrated HP 3000 installed base.
More than once during the one-hour report to financial analysts, HP CEO Meg Whitman and her CFO Cathie Lesjak talked about Unix like it's a market whose growth days have been eclipsed by steady erosion of sales and profits. "We have more opportunity to improve our profitability," Whitman said about a quarter where the overall GAAP earnings were 83 cents a share. That's $1.82 billion of profit on sales of $29.1 billion in sales. Revenues declined 1 percent against last year's Q4.
But R&D, so essential to improving the value of using HP-created environments like HP-UX, has seen its days of growth come to halt, and then decline at the Business Critical Systems unit. Lesjak said the company's year-over-year decline in R&D was a result of "rationalization in Business Critical Systems." In particular, the company's Unix products and business can't justify R&D of prior quarters and fiscal years.
As you look at the year-over-year declines in R&D, that was really driven by two primary things. One is the rationalization of R&D, specifically in the Enterprise Group's Business Critical Systems -- so we really align the R&D investment in that space with the long-term business realities of the Unix market. We did get some of what we call R&D value-added tax subsidy credits that came through. Those basically offset some of the R&D expense.
Business Critical Systems revenue declined 17 percent in the quarter to $334 million, due to "a declining Unix market." On the current run rate, BCS represents 1 percent of HP sales. And BCS sales have been dropping between 15 and 30 percent for every quarter for more than six quarters. HP posted an increase in its enterprise systems business overall, mostly on increased sales of the Linux and Windows systems in its Industry Standard Servers unit.
HP said it expects "continued traction in converged storage, networking, and converged infrastructure," for its enterprise business. But somehow, as the entire Unix market shrinks, HP said it's maintaining market share in that space. R&D at BCS will not be part of HP's planned growth for research and development in 2014, though.