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Issue Date: March 2008

AnalystWatch: HP Q1 2008 Results

March 2008
Roy Illsley, Butler Group analyst

HP last week announced its Q1 results that showed 13% year-on-year growth giving a $2,1bn net profit for the quarter, arising from $25,8bn of revenue.

HP last week announced its Q1 results that showed 13% year-on-year growth giving a $2,1bn net profit for the quarter, arising from $25,8bn of revenue.
HP stated that it has a target to diversify its revenues so that 69% of business comes from outside the US (as of Q1 08 only 60% comes from outside US), and currently Europe, Middle East, and Africa is the largest region with a 43% share of HP's business.
The results for EMEA showed that all sectors grew, but the Personal Systems Group (PSG) showed a particularly strong quarter with a 24% year-on-year growth, and the Technology Solutions Group (TSG) turned in a 10% year-on-year figure.
However, these headlines hide a number of very interesting nuggets of information on HP's business as a whole.
First, the Software sector still only accounts for 2% of HP's revenues. Within this sector only Business Technology Optimisation (BTO), which accounts for 82% of revenues within the Software division and was formerly reported as Openview (including legacy Openview, Opsware, and SPI Dynamics), showed a 19% year-on-year growth. The remainder, termed 'other software', which Includes legacy OpenCall, Business Intelligence, and Information Management businesses, showed a 14% year-on-year decline. In fact very little was said about HP's BI capability, other than they (HP) intend to build and grow it, and as such I would not be surprised if HP acquired another BI vendor to bolster its revenues and market share in 2008.
Second, the Industry Standard Server (ISS) business reported revenues up 11% year-on-year, with blades up 79% year-on-year, providing further evidence that blades are a rapidly expanding part of the ISS market. HP stated that in Western Europe it has a near 60% market share in the blade business in some countries.
Third, notebook revenues were up 37% year-on-year, but this was set against a 49% increase in units shipped, which shows that either the price is falling on notebooks, or the split of consumer to enterprise is skewed towards the enterprise sector, which has impacted the revenues. Desktops remain behind notebooks in terms of growth, with a 15% year-on-year revenue and unit increase.
However, HP said that the Neoware acquisition has now been successfully integrated, and they expect thin client to be a focus for Q2.
It will be interesting to see if the thin client business cannibalises the desktop market as most anticipate, or creates a new segment, which appears unlikely given the discussions on 'green IT' and Virtual Desktop Infrastructure that is now dominating talk about desktop computing.
Finally, the PSG figures also showed that HP was not performing in the handheld market, as it represented only 1% of total PSG revenue, and HP said that the handheld market is very slow and did not provide any focus that could be attributed to it for the coming quarter.
These results demonstrate that HP has a strong business plan, and has extended it with a clear vision of ensuring that its global position is maintained in its core businesses, with a good approach to delivering continued growth. However, HP has a number of businesses that will ultimately become competitors, such as thin client and desktop, and unless it is clear on how these are to co-exist then it may face some tougher quarters in the years to come.
Source: Computergram


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