Industry recovery gathers pace, although some left behind

Hewlett-Packard, the world’s largest IT business, was emblematic of the industry’s return to form. In the three months ending 31 December, the company grew revenues by 8% to $31.2 billion  while net income leapt 25% to $2.3 billion.

This success was due in part to whirlwind demand for its consumer products. The company’s Personal Systems Group, which specialises in PCs, laptops and netbooks, saw shipments soar by 26%, with a 24% rise in notebook revenues offsetting a 16% downturn in desktop computer sales.

But that is not to say that businesses are not spending. Revenue derived from HP’s Enterprise Storage and Servers unit ticked up 11%, based on a 27% rise in server sales. That was offset by a 22% nosedive in Business Critical Systems and a 3% wane in sales of storage products.

However, the company’s Enterprise Services division, which has been something of a revenue crutch throughout its last few troubled quarters, was mostly static in terms of revenue, slipping 1%.

Sales rocketed 19% in the Asia-Pacific region and grew 7% in the Americas, but in Europe they fell by 1%. Mark Hurd, chief executive of HP, described the business’s performance in Europe as “mixed”, noting that while some territories in the continent “showed some rebound”, others appeared stagnant.

Computer-maker Dell’s fourth-quarter results baffled analysts. The company logged an impressive 11% year-on-year revenue increase, up to $14.9 billion, but somehow managed to shrink net income performance by 4.8% to $334 million in the same period.

Dell’s revenue growth was driven by all four of its major business operations, with its public sector unit showing the greatest upturn at 16% to $3.8 billion. Enterprise revenues, which grew 8% to $4.2 billion, were the slowest to rise. The 2009 acquisition of IT services supplier Perot Systems added $600 million to overall revenues.

Its dwindling profit was attributed to a high volume of sales for its low-margin consumer-focused desktop PCs and laptops over the Christmas period, coupled with an increase in component prices. 

“This past year, demand started off quite slowly and gradually improved as the year progressed,” chief executive Michael Dell told analysts. “Towards the latter part of the year, as the economy was stabilising, we saw broad increases in demand across all of our businesses and that has continued.” Dell added that the release of Microsoft latest operating system Windows 7 during the quarter motivated sales.

One company not to have suffered significantly during the past 18 months is, but the software-as-a-service pioneer is nevertheless riding the upward wave. During its fourth quarter, the company’s revenue jumped 22% to $354 million while net income – usually its Achilles heel – grew by 62% to $20.4 million.  Unusually, the company saw faster growth in Europe than it did in the US.  

“While most software companies are trying to forget the past year, our fiscal 2010 looks perhaps like our most memorable and exciting year ever,” said chief executive Marc Benioff. 

Out in the cold

Systems vendor Novell was one company not involved in the bounce-back. It saw sales fall 5.8% to $202.4 million, driven by revenue declines of 25% and 20% respectively for software licences and services. Maintenance and subscription revenues registered a paper-thin 0.1% uptick, while open platform solutions – mainly Linux products – grew 6.4%. 

Novell did manage an 89% net income upsurge to $20.2 million for the fourth quarter, which it attributed to favourable currency fluctuations and ambiguously defined ‘expense management’. Ron Hovsepian, chief executive of Novell, described its quarterly performance as “solid”.  

Shortly after its lacklustre results were published, New York hedge fund Elliott Associates offered to take Novell private for $5.75 per share, an offer that values the company at $1.7 billion. 

“Over the past several years, [Novell] has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful,” the fund’s management wrote in a letter to the company’s board. “As a result, we believe the company’s stock has meaningfully underperformed all relevant indices and peers.” Novell had not responded at the time of press. 

On the other side of the Atlantic, Capgemini, Europe’s biggest IT consultancy, watched its net income crumple by 54.5% to £100 million in the second half of 2009.

Profits at the Paris-based company were torpedoed by the restructuring costs of large-scale staff redundancies and moving operations offshore, primarily to India. Revenues were hit for 7.9%, slipping to £3.99 billion, prompting the business to forecast more pain for the first half of 2010.

Capgemini’s saviour was the UK and Irish market, growing 7.5%, while home market France deteriorated 6.1%. All other territories, including Asia-Pacific and the US, saw negative growth.

CEO Paul Hermelin told the Financial Times newspaper that demand for its services still “mediocre” at present, but insisted that a return in appetite for larger projects, notably from the financial sector, would propel the company back into growth during the second half of 2010.

Peter Done

Peter Done is managing director of Peninsula Business Services, the personnel and employment law consultancy he set up having already built a successful betting shop business.

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