Hewlett Packard’s acquisition of IT services provider EDS last year continues to mask a troubled underlying financial performance at the company.
In its most recent quarter, ending July 31 2009, combined revenues fell by 2% to $27.5 billion. But the fall would have been greater had it not been for a 93% revenue increase in the company’s IT services division up to $8.5 billion that was, according to the company, “due primarily to the EDS acquisition”. Discounting that 93% increase, revenues would have been closer to $23.1 billion, a 17.5% drop.
It is also worth noting that in the second quarter of last year (the three months ending June 30 2008), EDS took revenues of $5.6 billion. Even if the entire 93% rise in revenues at HP’s IT services business was due to the addition of EDS, therefore, it would represent an approximate 26% fall in the acquired company’s quarterly revenues (although this a not comparison of precisely the same time periods).
Aside from the services business, all divisions saw double-digit revenue falls (save its financing arm). Most damaging, perhaps, was the 20% revenue drop for the Imaging and Printing Group – historically HP’s profit engine – to $5.7 billion. Operating profit for the division fell 4% to $960 million. Revenue for HP Software fell 22% but operating profit rose 13% to $153 million.
Geographically, HP’s Europe, Middle East and Africa division saw the steepest revenue decline, down 12% to $9.9 billion. This was in part explained by currency fluctuations, but CEO Mark Hurd also commented that the signs of recovery seen amongst US customers have not yet been observed in Europe.
“The US is beginning to do some refresh work and you are seeing that show up in the numbers,” he said in a conference call for investment analysts. “Things are still not as robust in Europe.”
HP’s operating profit for the quarter fell 14% to $2.2 billion.