HP CEO Calls for Better Storage

Hewlett-Packard Co. (NYSE: HPQ) announced third-quarter results yesterday, posting revenues of $20.8 billion, up 10 percent on the same period last year. But despite beating analyst estimates, CEO Mark Hurd is still concerned about the companys storage business (see HP Reports Q3).

The troubled vendor is currently in the throes of a major reorganization as Hurd attempts to get some of the firm's underperforming business units back on track (see It's Hurd for HP and High Hopes in Palo Alto).

And this has not been without bloodshed. Last month, Hurd announced plans to slash nearly 10 percent of HP’s global workforce (see HP to Lay Off 10 Percent and HP Outlines Restructuring).

It may take awhile to effect positive change. HP’s third-quarter profits felt the impact of a tax adjustment after the firm opted to repatriate $14.5 billion in cash from foreign earnings in the third and fourth quarters. The vendor’s net earnings were cut to $73 million, or 3 cents per share, down from $586 million, or 19 cents per share, in the same period last year.

However, the company’s non-GAAP net earnings were $1.06 billion, or 36 cents per share, compared to $728 million, or 24 cents per share, in the third quarter of last year. Analysts had projected earnings of 31 cents.After a serious dip last year, HP’s Enterprise Storage and Servers (ESS) division is bouncing back (more or less). ESS reported revenues of $4 billion for this quarter, up 20 percent year-over-year. However, this figure was actually down sequentially on the second quarter of 2005.

Speaking on a conference call last night, the CEO said that blade servers were a highlight for HP, with revenues rising 53 percent year-over-year, and there was also some growth in storage. HP’s networked storage revenues, for example, grew 15 percent. Hurd added that EVA storage revenues were up 19 percent sequentially, boosted by recent product launches (see HP Hoists New Storage Products and Users Eye Up HP's EVA).

However, HP’s storage business is still not where Hurd would like it to be. The CEO explained that in the future, he wants to see “sustained performance” over a long period of time, similar to that of HP’s Personal Systems Group (PSG). “We have got more work to do on storage and we know it,” he said. “No one is taking a lap around the building" to celebrate the company’s storage numbers.

Revenues from the PSG, which includes notebook and desktop sales, grew 8 percent year-over-year to $6.4 billion in the quarter.

The other division causing sleepless nights in Palo Alto is HP’s software business, which reported an operating loss of $40 million, although this figure was better than the $48 million loss in the third quarter of last year. Again, this is another area where there is “work to do,” according to Hurd.But the CEO did not say whether any of HP’s divisions are likely to be jettisoned as part of the company’s ongoing restructuring. A recent poll of Byte and Switch readers urged HP to keep hold of its storage business because of its importance to the firm's success (see Poll: HP Should Keep Storage).

The market responded warmly to the results. In after-hours trading, shares of HP rose $1.59 (6.71 percent) to $25.29.

— James Rogers, Site Editor, Next-Gen Data Center Forum