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HP Aims To Improve Enterprise Services as Earnings Decline

Third quarter earnings show weakness in PC as well as Enterprise product lines.

HP's effort to re-invigorate its products and its business continues to face multiple challenges. HP reported its third quarter fiscal 2012 earnings late Wednesday, including a massive $8.9 billion dollar net earnings loss.

For the quarter, HP reported net revenue of $29.7 billion, for a 5 percent year-over-year decline. HP's decline is due to a number of factors, including a challenging macro-economic climate and a slowing PC business. Despite the challenges, CEO Meg Whitman pledged during the company's earnings call that she is still on track to improving her company's fortunes.

"Make no mistake about it, we're still in the early stages of a turnaround," Whitman said. "There will be challenges ahead that could create some variability in performance, but I'm confident in our ability to work through them and get to where we want to be."

HP's revenue decline was actually deeper in the third quarter than it was in the second quarter of this year, when HP reported a 3 percent year-over-year decline in revenue.

"When you look at our performance during the quarter, there were things that we did well, and there were things that we could have done better," Whitman said.

One particular area of weakness is HP's Enterprise Services (ES) business. Within that unit, Enterprise Servers, Storage and Networking reported revenue of $5.1 billion, for a 4 percent year-over-year decline.

Itanium Impact

On a more negative note, HP's Business Critical Systems (BCS) revenue declined 16 percent year-over-year.

"BCS performance continued to be impacted by Itanium revenue decline, even with the first ruling in the Oracle Itanium case going in our favor," HP CFO, Catherine Lesjak said during the earnings call.

HP and Oracle have been locked in a legal battle over support for HP's Itanium BCS systems. Oracle publicly announced in March 2011 that it was abandoning HP's Itanium server. HP responded by demanding that Oracle continue to support the platform. In a legal ruling the first week of August, the court ruled in HP's favor, though Oracle is appealing the ruling.

PC Declines

HP is also being negatively impacted by the continued contraction of the PC market. HP's Personal Systems Group (PSG) revenue was down 10 percent year over year to $8.6 billion, with desktop units down 6 percent and notebook units down 12 percent.

Whitman is optimistic about a turnaround for PSG, with a new line of PCs and tablets set for a fall release. HP isn't the only PC vendor seeing a decline. Dell is also seeing slumping PC sales, reporting a 22 percent decline in its overall consumer business during the second quarter of 2012.

The plan to improve HP's financial performance is a complicated one, involving both short and long-term effort.

"We have to focus on the short term, and we have to focus on the long term," Whitman said. Because if we don't focus on the long term, we will constantly be behind, but if we don't fix our short-term operations, we won't have the money to invest in the long term. So we have to do both, and it's a balancing act."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.




Tags: HP, enterprise services


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