HP to Shrink 'n' Save

HP, buoyed by solid second-quarter results, today revealed plans to consolidate its 85 global data centers into six main sites located in Atlanta, Houston, and Austin, Texas. (See HP Reports Q2.)

Each 50,000-square-foot site -- two in each city, fifteen miles apart -- will be used to host HP's own server and storage infrastructure. The company estimates that the consolidation will shave $1 billion off its IT costs. To help the savings, HP will deploy new cooling techniques in the data centers in hopes of slashing power expenditure by one-fourth.

The move is the latest step in the long-term reorganization of HP, following the departure of former CEO Carly Fiorina last year. (See HP CEO Steps Down.) As well as looking to streamline the company and tighten costs, Fiorina's successor, Mark Hurd, highlighted the firm's underperforming storage business as one of his top priorities when he took the HP hot seat. (See HP Storage Slammed, HP Plots New Course, HP Stays Hopeful on Storage, and HP's Relevant Again.)

Despite speculation last year that the vendor may spin off its troubled storage business, HP has instead refocused its energies on the division, unveiling a major upgrade of its midrange EVA family of products last year and new products earlier this year. (See Poll: HP Should Keep Storage, HP Plans EVA Facelift, HP Hoists New Storage Products, HP Plans HW/SW Upgrades, and IBM Expands 4-Gbit/s & Backup.)

As well as upgrading the EVA, HP also added products such as high-end NAS, virtual tape, WAN acceleration, and backup services last year through partnerships with PolyServe, Sepaton, Riverbed, and Asigra. HP also acquired storage management vendor AppIQ in September. (See HP Storage Gets off the Deck.)The storage revamp looks to be working. HP's storage business helped underpin the vendor's second-quarter results. Revenues from storage and servers were $4.3 billion in the quarter, up 2 percent over the same period last year. (See HP Stays Hopeful on Storage.)

HP's midrange EVA line has been a solid seller, with the vendor announcing revenues up 46 percent yesterday compared to the second quarter of 2005. Revenues from networked storage grew 8 percent year-on-year, led by strength in external arrays. High-end XP revenue also grew 8 percent.

Hurd plans to keep the momentum by adjusting prices for the Enterprise Servers and Storage (ESS) division. "You will see us take action in form of pricing and go-to-market initiatives," he said on last night's conference call.

Wall Street seems receptive to the changes. Analyst Aaron Rakers of A.G. Edwards, in a note released this morning, said HP's "ongoing momentum" indicates relatively healthy storage spending and could also represent a competitive challenge to EMC and Network Appliance in the midrange space.

But HP is still not out of the woods, and analyst Andrew Neff of Bear Stearns warns in a note that the vendor still faces stiff competition from Dell in servers and storage. A.G. Edwards' Raker also says that HP should not get carried away with its 2 percent storage revenue growth, citing 6 percent and 8 percent upticks in the two prior April quarters.Overall, HP posted second-quarter revenues of $22.6 billion, up 5 percent over the same period last year and in line with analyst estimates. Earnings per share were 51 cents on profit of $1.7 billion, up from 33 cents and $1.2 billion in the year-ago quarter.

The firm's revenues from traditional servers increased 4 percent year-over-year, although HP's blade server revenues rose by 60 percent.

The market responded positively to the results. In early trading today, HP shares rose $1.28 (4.11 percent) to $32.39.

James Rogers, Senior Editor, Byte and Switch

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