HP Servers, Storage Decline As Split Begins
Hewlett-Packard reported declining fiscal year and quarterly revenues as it implements a restructuring plan for breaking into an enterprise business and a PC and printer businesses.
HP reported fourth quarter net revenues of $28.4 billion, down 2 percent from the same quarter last year. It also reported declining annual revenues of $111.5 billion, a 1 percent decline year-on-year.
The company said it did hit the high end of its earnings estimate, at $1.06 per share. CEO Meg Whitman also stressed that HP boosted R&D spending by 10 percent over the last year at the same time as HP did a restructuring effort that shed 41,000 employees over the same period.
Cathie Lesjak, HP's chief financial officer, characterized the results for the company's enterprise group as "mixed" despite stronger demand for the latest generation of its ProLiant servers.
In the quarter ended in October, storage revenues declined 8 percent year-on-year to $878 million as the market shifts to large- to mid-tier demand, Lesjak said. Storage revenue actually rose 10 percent sequentially over the previous quarter, narrowing the year-on-year decline. Converged storage revenue decline 3 percent on annual basis. HP said its server revenue was down 2 percent on an annual basis to $3.37 billion. That total was up 9 percent from the previous quarter, and Lesjak said there was strong demand in the pipeline for HP's next generation servers based on Intel's "Haswell" Xeon E5 processors.
Software revenues led by software-as-a-service and security offerings were off 1 percent year-on-year at $1.08 billion but rose a healthy 13 percent over the previous quarter. Lesjak attributed the strong quarterly software revenues to a double-digit increase in security software. Meanwhile, SaaS revenue remained "flat," she added.
Pre-tax earnings for HP's Enterprise Group that includes server and storage units rose on a quarterly basis to $1.075 billion, but declined slightly on an annual basis.
Software profits, driven by security applications, jumped $338 million during the quarter, up from $330 million last year.
Whitman, who was brought in to right the ship, stressed that "turnarounds aren't linear" and predicted that progress toward reviving the company would accelerate during the last two years of the five-year renewal strategy. The company acquired cloud controller specialist Eucalyptus Systems in September, and Whitman did not rule out additional acquisitions.
She also stressed that a HP has established a "separation management office" to oversee the breakup into hardware and enterprise companies.
"This is a big and complicated separation," added Whitman, resulting in a pair of companies each with more than $50 billion in revenues. The separation is an opportunity to "clean sheet two Fortune 50 companies," Whitman added during an earnings call with analysts.
Despite the muted fiscal year and quarterly results, both Whitman and Lesjak remained upbeat about the first quarter of fiscal 2015. For example, "We see a real upside" in enterprise services in the first quarter, Lesjak said,
Whitman forecast an uptick in growth in enterprise segments like converged storage, software-defined networks, and HP's Helion cloud infrastructure.
Analysts said HP Enterprise also could grab a larger share of the server market in the wake of IBM's recent spinoff of its server business to Lenovo.
"We expect the storage business to see some improvement given end demand as well as mix shift within HP’s business," Wells Fargo's Maynard Um said in a research note prior to the earnings call. One reason is that newer converged storage accounts for an estimated 46 percent of total storage sales, reducing the impact on overall growth from the declining legacy products, Um added.
