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Virtualization Expo - Computer Giant Lumbers in, Plops 10% Growth on the Table
HP's Biggest Problem Right Now Appears to Be the Strengthening Dollar

HP earned $2 billion, 80 cents a share, up 14%, on revenues of $28 billion, up 10%, in its third fiscal quarter ended July 31, 2008, outperforming expectations against a hard compare.

Salvaged by notebooks, blades and overseas growth, the results calmed jitters that the bellwether would miss.

In fiscal Q3 HP derived 68% of its revenues from outside the US with revenues from the BRIC countries up 24% year-over-year, accounting for 10% of total revenue. It said it had triple digit growth in Russia.

Revenue grew 4% year-over-year to $11.6 billion in the Americas, 16% to $11.2 billion in EMEA and 14% to $5.2 billion in Asia Pacific. The US did better than HP thought it would.

HP’s biggest problem right now appears to be the strengthening dollar because, adjusted for currency effects, revenue in the Americas only grew 3%, 5% in EMEA and 8% in Asia Pacific in Q3.

Although HP admits a dollar could drag down its revenues this quarter, it said it was “confident” sales could land somewhere between $30.2 billion and $30.3 billion and return 95 cents-97 cents (GAAP) or $1.01 to $1.03 (non-GAAP). The numbers outstrip expectations.

Credit Suisse, on the other hand, figures that “it will become increasingly difficult [for HP] to post material margin and market share improvements over time, as the company has exceeded benchmark margins in its key segments and competition is intensifying. In particular, we believe a turnaround at Dell may compress HP’s potential revenue growth and margin potential in PCs, and to a lesser extent, in industry standard servers.”

Anyway, HP’s estimates don’t reflect the financial impact of its $13.9 billion acquisition of EDS, which it said would close this month.

HP will be taking on debt to pay for EDS because most of its cash is outside the US. It promised a clearer picture of the impact EDS will have during a webcast on September 15.

Some 500 HP and EDS people have been dedicated to the integration and EDS customers are supposed to be sanguine about the takeover.

HP’s own services were up 14% to $4.8 billion in the quarter ahead of the merger.

During a conference call, CEO Mark Hurd said that he expected HP overhead to decline more in fiscal ’09 than it had in either ’07 or ’08. He did not put a number on it.

PC revenues spurted ahead 15% to $10.3 billion, with units up 20%. Notebook revenues were up an amazing 26%, desktop=20 6%. Commercial client revenue was up 15%, while consumer was up 17%, resulting in an operating profit of $587 million, or 5.7% of revenue.

Things weren’t quite as pretty at HP’s all-important printer unit, the historical source of its profits, where revenue was up only 3% to $7 billion, with supply revenues up 11%. Commercial hardware revenue was down 5% and consumer hardware revenue down 14%. Unit shipments declined 2%, with consumer printers flat and commercial units down 9%. Its operating profit was $1 billion, or 15% of revenue, versus $981 million, or 14.5% of revenue, last year.

Reports suggest more layoffs in the printer division.

Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up 5% fueled by blades, which grew a heady 66%, and storage, which grew 16%. Industry standard server revenue was only up 2%. Business critical systems revenue increased 2%. The unit realized an operating profit of $544 million, or 11.5% of revenue.

Software revenue was up 29% to a small $781 million, led by 32% growth in the Business Technology Optimization portfolio. The unit saw an operating profit of $122 million, or 15.6% of revenue, up from $51 million.

About Maureen O'Gara
Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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