Earnings and Investments

Hewlett-Packard Co. (HP) posted strong third quarter financial results, while Salesforce.com Inc. showed a solid jump in second quarter sales and earnings and announced an acquisition. In other news, IBM Corp. stated it was investing $300 million in cloud computing disaster recovery centers in 10 countries.

Focal Points:

• HP reported record revenue for the third quarter of its fiscal 2008 year, driven by robust international sales in its notebook computer and printer businesses. Total revenues for the quarter increased 10 percent year-over-year to $28.0 billion. Net income for the quarter on a GAAP basis was $2.5 billion or $0.80 per diluted share. This was 39 percent higher than comparable net income of $1.8 billion, or 66 cents per share, for the same period last year, HP added. Executives stated revenues from outside the United States accounted for 68 percent of the total, even though European spending was "a mixed bag." Revenues in the Personal Systems Group (PSG) rose 15 percent to $10.3 billion, with unit shipments up 20 percent from last year. Notebook revenue grew 26 percent from last year, while desktop revenue rose 6 percent. Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up five percent over the prior-year. This was driven by strong results in ESS blades including Integrity blades, which grew 66 percent, and storage, which increased 16 percent.
• Salesforce.com revenues grew 49 percent year-over-year to $263 million from $176.6 million in the year-ago quarter. Net income for the quarter on a GAAP basis was $10 million or $0.08 per diluted share. The company reported a record 4,100 new customer additions for the quarter, bringing the total number to 47,700 customers. Also last week Salesforce announced it had acquired call-center-software supplier InStranet Inc. for $31.5 million. The company claims its software is used by 350,000 call center agents around the world. Salesforce had initially partnered with InStranet at the urging of services-oriented customers who needed "knowledge-management" capabilities, according to company officials. Salesforce executives emphasized what InStranet can do for online product support search, making it easier to pull up relevant online support documents than is typical with standard keyword searches.
• IBM says it plans to spend $300 million this year to build 13 cloud computing data centers where businesses can store information for quick retrieval in case their computer systems are destroyed in a disaster. These centers will be in 10 countries, including China, France, Japan, Poland, Turkey, and the United States. IBM has only rolled out the cloud computing data recovery technology to fewer than five of its 154 existing data centers at this point. The technology encrypts data on computers, automatically sending it to IBM's cloud computing center over the Internet. If a customer's computer breaks down or a data center is destroyed, lost data can be restored via the Web in two to six hours, according to IBM executives.

Experton Group believes the slowing global economy, the greening of IT, the push for better productivity, resource utilization, reduced costs, and outsourcing are major drivers behind the continued momentum for IT companies.  HP, IBM, and Salesforce.com are all well positioned to capitalize on the demands of the market in all geographies and sectors. The upsurge in HP blade server sales is a strong indicator of the demand for consolidation platforms. Similarly, executives should expect Salesforce.com's recent willingness to finally negotiate enterprise prices (which it just did for a deal with Dell Inc.) will enable Salesforce.com to gain momentum in the enterprise market.

IBM's move into the cloud computing disaster recovery space expands IBM's current business recovery services to those companies that do not need the more rapid, more expensive recovery options that the company currently offers. This strategic leap shows IBM's leadership and will garner the company a first mover advantage, especially with small and medium-sized businesses (SMBs) and in emerging markets. IT executives should re-examine their data center and outsourcing strategies, play vendors off against one another in terms of data center architecture, deals, financing, pre-sales support, strategic relationships, and thought leadership, and leverage vendor competitiveness to the enterprises' advantage.