February 2005

February 2005

HP’s Q1 report showed slight growth in HP-UX servers

After warning analysts not to ask about its CEO switch, HP took questions Feb. 16 on its first quarter 2005 results in a one-hour conference call. The numbers included 3 percent sales growth for HP-UX servers, according to Technology Solutions Group Executive VP Ann Livermore. “This marks the fourth consecutive quarter of year over year growth,” she said of HP’s Unix business. But overall numbers for HP’s Business Critical Systems (BCS), home of HP-UX alternatives for the 3000 as well as the Digital Alpha and NonStop servers, dipped 2 percent on the period. HP’s overall profit for the Enterprise Storage and Servers unit dropped 53 percent for the period, reflecting the intense competition with Dell and IBM for server market share.

The HP Integrity server line, powered by the Itanium processors HP developed with Intel, now represents 18 percent of BCS revenues. Integrity sales doubled during the quarter compared to 2004’s first period. HP wants Integrity to represent half of its BCS revenues by the end of this calendar year.

The company’s overall numbers — $21.5 billion in sales, up from last year’s Q1 revenues of $19.5 billion — delivered 32 cents per share in earnings, flat compared to last year’s Q1. The earnings, bogged down by a $116 million patent settlement with Intergraph, were buoyed by $932 million of imaging and printer group operating profits. Nothing changed much about this mix of HP’s profits: Imaging and printers contributed 63 percent of HP’s operating profits for the quarter. HP Services posted another 20 percent of the company’s profits, while the company’s software group lost money for the ninth straight quarter.

Livermore noted that HP profits in Technical Services, home of its support operations, are expected to decline in the months and years to come. Services contributes 80 percent of the operating profit in Livermore’s Technology Solutions Group. She said HP’s services portfolio is moving away from the more profitable proprietary technical support business (at one point MPE/iX, and now HP-UX) to the industry standard business around Windows PCs. She also noted that ProLiant servers are driving server growth at HP.

To help offset long-term pressure on its profits, HP spent $60 million last quarter to reduce its workforce, with more than half of its cuts coming in the enterprise storage and servers unit. The company will more than double those reduction expenses in the next quarter, with the majority of the cuts coming in its enterprise units.

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