HP Revenues Rise, Services Slip

Hewlett-Packard CEO Mark Hurd says the company's HP Services is being selective in its deals, and points to strong growth in notebook sales.

Hewlett-Packard in its first quarter of fiscal year 2006 saw revenue growth in all segments of its business except for the services unit, where revenues dropped 2 percent, to $3.8 billion.

Overall, HP saw revenues for the quarter jump 6 percent over the same quarter last year, to $22.7 billion. The revenue growth touched most business units, including printers, servers, PCs, storage and software, which saw profits for the second consecutive quarter.

The services unit was a different matter. In conference calls with reporters and analysts on Feb. 15, President and CEO Mark Hurd said the situation with HP Services was in large part impacted by moves the company is making to bring the unit back to profitability.

In particularly, HP, of Palo Alto, Calif., is being more careful in selecting the engagements to pursue, and has pulled out of the bidding for some jobs that officials felt did not fit the companys plans, Hurd said.

HP wants to ensure that the projects will not negatively impact the company and are ones that the company can be sure it can complete, he said.

"We knew going in that we were going to compress the growth rate [for the services business]," Hurd said, adding, "Clearly there are deals in the marketplace, but we have to show discipline" in deciding which ones to pursue.

The eventual goal is a profitable and efficient business, he said.

Services account for about 17 percent of HPs overall revenue, and industry analysts said it is and will be a key business unit for the company.

Last month there was rampant speculation that HP was going to buy Computer Sciences in an effort to bulk up its services business to compete with the likes of IBM Global Services, but talk of the deal has since died down, and Hurd during the conference call declined to comment on the rumor when asked.

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Overall, Hurd said he was pleased with the companys performance in the quarter. The Personal Systems Group saw revenues jump 8 percent to $7.4 billion, with the number of units shipped growing by 16 percent. Notebooks saw particular grow in both revenue—with 26 percent growth—and units shipped, with 47 percent growth.

"The market has been flooded in this shift to mobility," he said.

Revenues in the Enterprise Storage and Servers group grew 5 percent, to $4.2 billion. Revenue for HPs industry-standard ProLiant servers grew 6 percent, with revenue from blade servers growing 58 percent. Revenue for the companys Integrity servers, powered by Intels Itanium chips, grew 94 percent, and now account for 30 percent of overall Business Critical Systems revenue.

Responding to a question, Hurd said HP saw good growth in both its midrange EVA storage and high-end XP storage, but that the tape storage business continued to be soft.

Regarding the restructuring that Hurd announced a few months after becoming HP CEO in March 2005, he said another 1,800 people were laid off during the quarter, bringing to about 6,500 the number of jobs lost. That represents less than half of the total 14,500 jobs that HP plans on cutting as part of Hurds plans revamp the companys expenses.

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