HP and the Economy

Hewlett-Packard Co. (HP) posted strong first quarter financial results in all units. In other news, server shipments for fourth quarter and full year 2007 climbed despite fears of an economic slowdown.

Focal Points:

• HP reported record revenue for the first quarter of its fiscal 2008 year. Total revenues for the quarter increased 13 percent year-over-year to $28.5 billion. Net income for the quarter on a GAAP basis was $2.1 billion or $0.80 per diluted share. This was 45 percent higher than comparable net income of $1.5 billion, or 55 cents per share, for the same period last year, HP added. Company officials raised its full year guidance for its revenues to the range of $113.5 – 114.0 billion. This reflects HP's confidence in cost savings and share gains in key markets, according to Mark Hurd, HP's CEO. He also stated the company has added more than 2,000 sales positions over the past year through acquisitions and hiring.
• HP's Personal Systems Group (PSG) revenue grew 24 percent year-over-year to $10.8 billion, with unit shipments up 27 percent on a year-over-year basis. Imaging and Printing Group (IPG) revenue increased 4 percent year-over-year to $7.3 billion. Enterprise Storage and Servers (ESS) reported revenue of $4.8 billion, up 9 percent over the prior-year period fueled by ESS blades, which climbed 81 percent. On a year-over-year basis, industry-standard server revenue increased 11 percent and storage revenue grew 10 percent. Business critical systems revenue inched forward at 1 percent, although Integrity systems grew 37 percent. Both the HP Services (HPS) and HP Software revenues increased by 11 percent year over year. HP Financial Services (HPFS) reported revenue of $642 million, an increase of 17 percent year-over-year.
• Worldwide server shipments grew at an 11 percent clip in the fourth quarter of last year and revenues for the year increased at a 3 percent rate. IBM Corp. remained the leader on a revenue basis while HP kept the lead in shipments. Mainframes showed a decline in revenues, as enterprises awaited a new generation of mainframes from IBM. Shipments of RISC – Itanium Unix fell by more than 10 percent but revenues were up slightly. Blade servers remained the server growth hot spot with revenues rising in excess of 40 percent and shipments climbing 20 percent over 2006. HP led the market in shipments with a 42 percent share followed by IBM with a 31 percent share. On a revenue basis the two firms hold 78 percent of the market, according to the market research firms that compile this data. The remaining top server vendors in order of revenue share after IBM and HP are Dell, Inc.., Sun Microsystems Inc., and Fujitsu Ltd.

Experton Group believes HP's two year march is continuing to gain steam and unless there is major economic downturn, the company will meet its objectives of growth, profit and share for the year. Furthermore, Experton Group expects the economy to strengthen as the year progresses. The restructured IBM will remain HP's strongest challenger and Experton Group expects these firms to garner share away from the other players. The competition need to strengthen their strategies and abilities to execute if they want to compete successfully. IT executives should play the key vendors off against one another in terms of data center and systems architecture, deals, financing, pre-sales support, strategic relationships, and thought leadership and leverage vendor competitiveness to the enterprises' advantage.