Strong results follow CEO woes at HP and Dell

Two companies have dominated IT industry headlines of late, thanks mainly to the actions of their chief executives. Hewlett-Packard’s CEO was ousted amid accusations of sexual harassment, while Dell’s founder, CEO and chairman faced shareholder revolt over a probe into the company’s accounting practices by the US Securities and Exchange Commission.

The financial results published by both companies this week were less disastrous, with each achieving double-digit year-on-year growth in both revenues and profit. In both cases, however, there are signs that strong leadership may be needed in the immediate future.

During the three months ending 31 July 2010, HP grew revenues 11.4% year-on-year to $31.0 billion and net earnings by 15% to $2.6 billion. The IT giant’s revenue growth was helped along considerably by its enterprise systems unit. Revenue from industry-standard servers shot up 31% to $3.0 billion, while storage sales grew 10% to $904 million. The division also boosted profitability, its operating profit growing 44% year-on-year to $549 million. The poorest-performing division in revenue terms was the services unit, where sales grew by just 1% year-on-year. Still, the unit’s operating profit rose 7% to $1.4 billion.

Of course, these year-on-year revenue and profit comparisons hark back to the depths of the recession. Compared with the previous quarter, HP’s figures were less impressive: total revenues fell by 3% quarter-to-quarter and net earnings dropped 24%. There may well be seasonal factors afoot – among businesses, for example, fewer buying decisions typically take place in July than in other months of the year. But the quarter-to-quarter comparisons reveal that the company’s continued growth is not a foregone conclusion.

In the same three months, computer-maker Dell’s revenue grew by 22% year-on-year to $15.5 billion, and net income grew by 16% to $545 million. The acquisition of IT services provider Perot Systems in November 2009 was a significant contributory factor to Dell’s revenue growth. The  company’s services division revenues jumped 55% year-on-year to $3.1 billion as a result of that.

However, the company also saw high revenue growth within its servers and networking division, up 37% to $3.7 billion. Its desktop PC business and laptop units grew by 19% and 15% respectively, to $9.2 billion and $7.4 billion.
In quarter-to-quarter comparisons, Dell fared rather better than HP. Total revenues rose 4% sequentially, and net income by 60%.

The Perot acquisition and more recent buys in the IT infrastructure space mean Dell is taken more seriously in the enterprise space that it has been for some time, according to Forrester Research analyst Richard Fichera. “The image of Dell as being a glorified box pusher appears to be coming to an end,” he recently wrote.

But that fact has not escaped the leaders of the enterprise IT infrastructure market. When HP gazumped Dell’s attempted acquisition of storage management vendor 3PAR in August 2010, it was a sign that these companies will not give up their business without a fight.

Mixed fortunes

Different segments of the IT industry have experienced the recession in different ways. Most global hardware and software vendors are currently enjoying something of a comeback after a difficult 18 months, but the European IT services industry has yet to bounce back.
In July 2010, French IT services provider Atos Origin reported a 4% revenue decline for the first half of the financial year, down to e2.5 billion. A month later, it became clear that Atos was not the only provider in the sector that is still struggling. UK-headquartered Logica, for example, revealed that revenues were flat at £1.8 billion during the first half of the current financial year. Like most companies in the sector, Logica has seen its outsourcing division wax as demand for consulting has waned. The company’s outsourcing revenue rose 16% year-on-year to £792 million in the first six months of 2010, while that of consulting and professional services dropped 10% to £1.1 billion.

The company’s two largest geographical divisions – France and Northern and Central Europe – each grew by 3%, but sales in the UK fell by 3%. Revenue from the Benelux region dropped by 17%. The public sector contributes the largest fraction of Logica’s sales, but thanks to European austerity measures that fraction is dwindling: revenues from the public sector fell by 3%. That was almost balanced out by a 5% increase for the ‘Industry, Distribution and Transport’ segment.

A similar pattern was seen in Capgemini’s financial figures for the first half of the financial year, although the Paris-headquartered company saw more pronounced declines across its locations and divisions. The company’s combined half-year revenues fell 4% year-on-year to e4.2 billion. France is its largest market, and its revenue performance there – a 2.7% drop – was its strongest. UK sales fell by 5% and Benelux 12.2%.

Outsourcing revenues dropped by 6.3%, which the company attributed to one large contract that was renegotiated in the UK and another that was terminated in the US. Consulting revenues contracted 9.3% year-on-year.
Although both companies insisted that the worst was behind them, they each face a challenging time ahead as government IT contracts are re-evaluated. 

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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