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There is trouble brewing at the upper echelons of the IT industry, with many of its largest suppliers apparently bracing for tough times

Hewlett-Packard, the largest IT vendor in the world, reported a decidedly underwhelming set of financial results in May 2011.

For the three months ending 30 April 2011, the company's revenues totalled $31.6 billion, a year-on-year increase of just 3%. By way of comparison, the IT industry as a whole is growing at around 10%.

The company’s overall performance was blighted by a 5% drop in sales for its PC and laptop division, down to $9.4 billion. This drop reflected a 23% plunge in consumer device sales. The IT services division was sluggish, meanwhile, growing by just 2% to $9 billion.

Profit growth was similarly underwhelming, with net earnings rising just 5% to $2.3 billion. HP’s saving grace was its server, storage and network division, in which revenues rose 15% to $5.6 billion.

The perception that HP is a company not currently in charge of its own destiny was heightened by the fact that it reported its financial results earlier than expected, after a revealing internal memo from CEO Leo Apotheker to HP executives was leaked to the press.

In the memo, Apotheker warned his colleagues that the company faced “another tough quarter” in the coming three months. He instructed them to “watch every penny and minimise all hiring”, and asserted that the company’s current level of staffing was “unaffordable given the pressures on our business”.

Not long after, it emerged that HP is hoping to move 200 UK jobs, under a contract with the Department for Work and Pensions, to India.

Just weeks before Apotheker’s memo was leaked, a similar document from Cisco’s chief executive, John Chambers, made its way into the public domain.

In that memo, Chambers called time on a strategy of diversification that has seen the company move into markets as far removed from its original network equipment focus as consumer video cameras and TV set top boxes.

“We have disappointed our investors and we have confused our employees,” Chambers wrote. “Bottom line, we have lost some of the credibility that is foundational to Cisco’s success.” He told employees that Cisco would be renewing its focus on networking.

In May, Cisco reported revenue growth that, like that of HP, was well behind the pace of the industry. For the three months ending 30 April  2011, it grew revenues by just 5% year-on-year to $10.9 billion.

More troublingly for investors, the company's net income fell 17.6% to $1.8 billion.

Chambers, who during the recession came across as one of the industry’s more optimistic chief executives, was muted in his statements accompanying this latest announcement.

“This quarter played out as we expected,” he said. “We have acknowledged our challenges. We know what we have to do.”

Another big name to report sluggish performance in May was computer maker Dell. For the three months ending 29 April 2011, the company’s revenues grew by just 1% to $15 billion.

Again, the consumer business proved difficult for Dell – consumer revenues fell 7% year-on-year to $3 billion during the quarter. Sales of desktop PCs dropped 8% to $3.3 billion while the mobility division, which sells laptops, grew by just 3% to $4.8 billion.

But Dell has seen the collapse of its consumer and PC businesses coming for years, hence its diversification into IT services (thanks to its acquisition of Perot) and recent investments in new storage technology (Compellent, Ocarina and more).

If these strategies are having the desired effect, there was little evidence of it in Dell’s latest figures. Services revenues grew by just 5% to $2 billion, while storage revenues fell by 13% to $481 million.

Symantec bucks the trend

There were more positive signs in the most recent quarter for Symantec, the security and storage giant. After many quarters of low single-digit growth, the company managed a 9% sales uptick in the three months ending 1 April 2011 to $6.2 billion.

The company’s enterprise security division was the principle growth driver, with sales increasing 21% to $446 million during the quarter. The company said this was thanks in part to its data loss prevention business, which nearly doubled year-on-year, reflecting the shifting “focus of security to protecting information, not just infrastructure”.
The storage and server management division grew 8% to $626 million, while the consumer division, which sells the Norton anti-virus range, grew by 6% to $514 million.

This success was tempered by a 21% drop in services revenue to $87 million, which Symantec explained was a result of the company’s move away from providing customers with consultancy itself to a “partner-led consulting model”.

Symantec told investment analysts to expect rapid growth in its mobile security business as enterprise organisations increasingly allow employees to use consumer hardware at work.

“Customers are all telling us they want to adopt a policy of bring-your-own device to work, meaning that people can bring their own devices,” CEO Enrique Salem said on a conference call. “As they bring in tablets, they want to be able have a certain level of control on those devices, equivalent to the control they have on a company-issued PC.”