HP Sees Some Revenue Gains, but Challenges Remain

By Jeffrey Burt  |  Posted 2013-11-26

HP Sees Some Revenue Gains, but Challenges Remain

Hewlett-Packard, which has been battered over the past couple of years by a slowing PC market and instability in the executive ranks, saw some positive financial numbers coming out of the last fiscal quarter, adding some momentum behind CEO Meg Whitman's multiyear turnaround plan for the tech giant.

However, despite the numbers in some of its enterprise hardware and commercial PC units, HP still saw revenue decline in other businesses and faces a range of challenges as it looks to get back to consistent profitability.

In a conference call with analysts and journalists Nov. 26, Whitman was optimistic about the direction HP is going, but was cautious when speaking about future hurdles.

"Overall, I'm very pleased with the progress we have made, but we still have a lot of work to do to drive consistent execution and navigate a rapidly shifting marketplace," she said. "As we enter the third year of our turnaround, we will continue to execute against the improvement areas we outlined at our Securities Analyst Meeting last month, including increasing our commitment to research and development."

HP is trying to adapt to rapidly shifting market forces, such as mobility, where the company is "making progress on our … strategy, but we still have not broken through," Whitman said. The vendor also has to deal with a rapidly changing competitive landscape where rivals like Dell and Cisco Systems are looking to extend their reach throughout the data center, and to ensure it executes against its plans, she said.

"For example, we need to do more work to fix our go-to-market strategy in enterprise group, particularly in channel engagement and pricing," Whitman said.

For the fiscal fourth quarter, HP revenues hit $29.1 billion, a 3 percent drop over the same period in 2012. Income came in at $1.4 billion, a significant improvement over the $8.9 billion loss, much of which was created by an $8.8 billion charge against its acquisition of software maker Autonomy.

HP saw strength in its corporate businesses, with the Enterprise Group—which includes servers, storage appliances and networking—growing revenues by 2 percent, the first time it saw growth in eight quarters. That included x86-based servers, where sales jumped 10 percent, networking revenue grew 3 percent and storage revenue 1 percent. However, Whitman said that server sales were driven by several key wins in the hyperscale data center arena, and that the company may not be able to rely on such wins in the upcoming quarter.

Matthew Bowden, research analyst with Technology Business Research (TBR), in a research note, also attributed HP's x86 server growth to the company's "successful efforts to shield its customer base from rival Dell’s strategy to expand its x86 market share through low pricing."

Revenue in the Business Critical Systems unit—which includes its high-end Itanium-based Integrity and NonStop systems—continued to fall, this time by 17 percent, reflecting an overall decline in the larger worldwide Unix server space.

HP Sees Some Revenue Gains, But Challenges Remain

HP's PC business saw revenue declines of 2 percent, which was less than a decline than in past quarters and less than the overall market decline. That said, while overall consumer system revenues fell 10 percent, commercial PC sales grew 4 percent. Whitman said the company has put a lot of effort into the commercial PC business, including in its ability to offer a range of form factors that support multiple operating systems and run on multiple chip architectures.

"I think this is all about price and line-up as what we see in the enterprise is CIOs are trying to match the device to the worker group and what they need," she said. "So maybe a certain group of workers just needs VDI [virtual desktop infrastructure]. There are some who need workstations, some who need laptops, and whether they're backwards compatible to Windows or whether they are Chromebooks depends on what kind of work that team is doing. So that underscores our multi-OS, multi-architecture, multi-form factor strategy that frankly is relevant in the commercial space as it is in the consumer space."

HP is the second-largest PC maker in the world, behind Lenovo, and while the company may be seeing improving shipment numbers with the introduction of lower-cost Chromebooks and Android-based PCs, there are still challenges from Lenovo and other vendors from the Asia-Pacific (APAC) region, TBR's Bowden wrote.

"HP is facing stiff competition in North America and Western Europe as APAC vendors look to expand into the more profitable mature markets by utilizing aggressive pricing to undercut HP," he wrote. "HP is less willing to tolerate lower margins than are APAC vendors, limiting its ability to halt the erosion of its market share and forcing the vendor to rely on more specialized products such as Android notebook PCs and Chromebooks to target consumers outside the windows ecosystem."

The printing business also saw a boost from commercial customers. Overall revenues fell 1 percent, but hardware revenues were up 6 percent, including 9 percent for commercial hardware and 4 percent for consumer hardware. HP also saw sales declines in enterprise services and software.

Cathie Lesjak, executive vice president and chief financial officer, said the company also was continuing its aggressive expense reductions, including the continuing shedding of jobs. HP has set a goal of cutting 29,000 jobs over several years, and Lesjak said that through fiscal year 2013, 24,000 jobs were cut. She added that by the end of 2014, that number could reach a total of between 33,000 and 34,000 people losing their jobs.

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