HP back in the black but enterprise sales disappoint
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HP returned to profitability in its third quarter, despite weak sales of some of its key enterprise hardware products.
20 August 2003 Systems vendor Hewlett-Packard (HP) returned to profitability in its third quarter, despite weak sales of some of its key enterprise hardware products.
In one of the first tests of the performance of the new HP, more than a year after its hotly-contested merger with rival Compaq, revenue grew by 5% to $17.4 billion but still failed to meet Wall Street's expectations.
HP posted a net profit of $297 million, against a loss of $2 billion last year, when it had to digest major post-Compaq restructuring costs.
Of HP's various business divisions, the most disappointing results arguably were posted by the enterprise systems and personal systems (PCs) units.
Revenue growth from enterprise systems was flat and operating losses grew to $70 million, from $7 million in the preceding quarter. Strong growth in Windows and Linux based servers was offset by weak demand for its low-end Unix servers. Sales in Europe and Japan were especially disappointing.
The PC division, which returned to profit in the last quarter for the first time in years, slipped back into the red, despite a 5% growth in revenue.
Overall IT services revenue grew 5%, fuelled by strong demand for managed services and customer support. But revenue from consulting and systems integration projects fell 15%, thanks to project deferrals and what HP described as "overcapacity" in the consulting market.
Not for the first time in HP's recent history, it was left to the company's printing and imaging division to salvage its overall results. Revenue grew by 10% to $5.2 billion, while the unit's operating profit of $739 million represented almost four-fifths of the company's overall operating profit.
"The third quarter is always tough, but we still should have done better," said HP CEO Carly Fiorina. "Nevertheless, we are confident in our strategy and the actions we're taking. We expect to deliver a strong fourth quarter with every one of our businesses profitable."
HP's third-quarter results announcement coincided with a fresh reminder of last year's bitter struggle for control of Compaq.
The Securities and Exchange Commission, the US stock-market watchdog, said it had fined Deutsche Asset Management, Deutsche Bank's investment advisory unit, $750,000 for not disclosing a conflict of interest in its involvement in the merger. But the SEC accepted that Deutsche's actions did not materially affect the outcome of the critical March 2002 shareholder vote.
