As Hewlett-Packard (HP) closed its acquisition of rival Compaq in early May 2002, many industry watchers were dubious about whether CEO Carly Fiorina and her senior management team at HP could make the $19 billion combination work. After all, Compaq and HP overlapped in so many product areas – servers, PCs, notebooks, PDAs, even printers – that the result of 1+1, many predicted, was going to be 1.5 at best.
The latest figures from HP suggest that Fiorina has proved them wrong. For the final quarter of its fiscal year, ending 31 October, HP posted revenues of $19.9 billion, up 10% over the same period a year earlier, and up 14% over the third fiscal quarter. Net profits also looked good, rising to $862 million from $390 million last year. Given the numbers, Fiorina was understandably triumphant. “By any measure, we hit our stride and demonstrated what the merger was all about,” she declared.
HP is claiming victory in four key areas – printers, PCs, servers and services – with some justification, and making it a much more formidable rival to one-stop shop opponent IBM.
However, not every part of the report was glowing. The company continues to be dependent on its largest unit – printing and imaging. Its revenues, of $6.2 billion, were up 11%, representing 31% of overall revenues. More tellingly, the sale of printers, cartridges and other imaging products accounted for 66% of the company’s total profits.
Nonetheless, HP is proving that it can challenge and take leadership positions in markets other than printers. In personal systems, the company closed the gap on sector number one Dell by generating revenues of $6 billion in the fourth quarter, a 19% rise. Notebooks, in particular, were a runaway success, and grew by over 50%, with desktop PC sales jumping 23% since last year when Fiorina made it clear that HP was after the PC crown. ” The PC market is [now] a two-horse race… clearly a market where the leaders win and everybody else loses,” she said.
The performance in the handheld market was even more robust, with sales of the HP iPAQ PDA doubling and providing the company with an extra 7% of market share.
Success was more measured in the corporate sector. Enterprise systems revenues were up 2% on last year’s fourth quarter to $4.1 billion. Behind that was a mixed performance in the server market. Windows server sales rose 9%; mid-range and low-end Unix revenues were flat; high-end Unix declined by 10%; and the company’s proprietary NonStop and Alpha lines declined “in the mid-single digits”.
Given the turmoil in the server market, those performances were still enough for both IDC and Gartner to report that HP had held onto its worldwide leadership position in server unit shipments, with 31% of the market keeping it ahead of IBM.
Sales of software were in a much healthier state, with solid demand for its OpenView systems management and OpenCall telecoms software producing a 20% rise in overall software revenues.
Alongside that, the company’s IT services unit turned in a good performance. Although revenue from consulting and integration declined 10%, revenue from managed services was up 22% and customer support revenue up 5%. Overall services revenues of $3.2 billion were up 5% on the same three months last year.
Equally strong signals that the enterprise market could be strengthening came from Dell. It turned in revenues up 16% to $10.6 billion for the same three months.
Success was most pronounced in the direct seller’s server business, which increased by a third year-on-year, twice the pace of the rest of the industry.
Like HP, Dell said notebook sales had been good this quarter, with Inspiron and Latitude notebook sales rising by a third and Dimension and OptiPlex PCs up a fifth.
Linux servers are becoming an increasingly large part of Dell’s server sales, and the corporate adoption of Linux is having an impact in many other segments of the industry.
Networking and directory software company Novell, for example, posted its first results that take into account the company’s August acquisition of Ximian, a creator of enterprise Linux desktop and server software. In the coming months, Novell’s takeover of Linux distributor SuSE will be a further factor. “We feel that the open source movement can be brought into the mainstream more expeditiously and with greater momentum,” said Jack Messman, Novell’s CEO.
Certainly, the company needs a new engine of growth. Revenues in its fourth fiscal quarter were down 5% to $287 million and net losses deepened to $109 million from $92 million in the fourth fiscal quarter 2002.
Novell has been struggling ever since its Netware network operating system was eclipsed by Microsoft’s late 1990s decision to bundle similar functionality with its Windows server products.
Corporate Linux – and the add-ons and services that surround it – just might be the lifeboat the company has been looking for.