HP's third quarter financial report showed that a company making adequate profits can also be making products that are not popular any more. The time comes to every product line, but the Hewlett-Packard of 2014 has made steady progress toward commodity-style enterprise computing. The pull into Windows has become a vortex -- and in a bit of irony, Windows' age helped HP's sales this quarter.
The overall numbers were impressive to the markets. Investors lifted the price of HP's stock more than $2 a share, after the briefing, sending it closer to $40 than it's been in years. Meanwhile, the continued downturn of Business Critical Systems scarcely earned a minute's mention. It's off 18 percent from the same 2013 quarter. But it gets less than a minute because BCS products like the HP Unix line, and VMS computing systems -- even the steady but meager business of NonStop -- only comprise 3 percent of the company's enterprise sales. In the circle above, BCS is the rounding error, the most slender slice. Click it to see a bigger picture of that smallest piece.
And Enterprise represents just one dollar out of every four that HP earns in sales. This is activity in the Industry Standard Systems. These are the ProLiant servers driving Windows and Linux, business that grew 9 percent. Specialized operating environments like HP-UX just aren't producing new business, and they're losing old customers. If you look over the last three years of Q3 numbers, each and every one shows a double-digit BCS decline. There's only so much clock time on that product wall before irrelevancy pushes a community off HP's futures map. It happened to the HP 3000, but MPE never ruled over HP business computing like Unix once did.
"When I look at the way the business is performing, the pipeline of innovation and the daily feedback that I receive from our customers and partners, my confidence in the turnaround grows stronger." -- Meg Whitman, CEO
So when HP's business in your installed platform shows poor numbers, what do you do? The rest of the company's report looked tame, although you'd wonder why anyone could be sanguine about the future of the company. Printing, Services, Software and Financial Services all dropped their sales top lines. The Enterprise Group grew its business 2 percent overall on a $27.5 billion HP sales quarter. This was accomplished by $57 million of expense cuts.
Only PC sales grew along with enterprise business. How can a company reporting a 27 percent drop in profits, one that missed its forecast by more than 10 percent, be rewarded on the trading floor? Jim Cramer of MSNBC said there's just enough to like about HP now. That might be due to the history the company has turned back. Everybody on the trading floor remembers HPQ at $12 a share with a fired CEO having followed an ousted CEO. Historic lows are a faded memory now, although the company's gotten no bigger over that stretch of clock time. The good feelings come from a turnaround tale that's still in the middle of its story.
This kind of sour outlook is like a chart-topping record back on '60s radio. As a customer you hear it all the time. But it's not a concern to the corporation making the Unix servers, or to the investors who propel that company into the future. You have to wonder why anyone else would care. It's an even more distant piece of history to recall the day MPE slipped into HP's under-a-minute bin. Enterprise outlook is not part of what Cramer likes about HP this month.
There's shopping until you drop, and shopping until the product line is dropped. The latter's probably years away for the enterprise products that are not commodities. The HP 3000 migrated base has experience in how to manage their investments in a line HP won't watch any longer. At some point they'll draw the line on whether their servers need to be powering Unix or VMS applications. It's the apps that steer operations investments. By this point, it would be news if BCS numbers did not drop.
It's a good thing that Windows XP dropped out of Microsoft's support plans. The demise of a popular OS left companies with a problem that required replacing aged PCs. The CEO is getting good at keeping HP's aged strategy from pulling down growth, but it's been flat for a long while. If there's a future to owning and staying loyal to Hewlett-Packard enterprise systems, few analysts can see it. You must look at customer applications -- and the dug-in nature of legacy computing -- to see the staying power.