Storage Hurts HP's Quarter

Strong sales of blade servers helped boost HP's fourth-quarter results, although CEO Mark Hurd wants much more from the vendor's storage businesses in the coming year. (See HP Reports Q4.)

Overall, the vendor posed a strong set of results, with revenues up 7 percent year-over-year to $24.6 billion, just beating analysts' estimates of $24.1 billion. "We had a solid quarter over the [HP product] portfolio," explained Hurd on a conference call tonight, but he warned that there is still room for significant improvement. "We're certainly not going on a victory lap."

On a GAAP basis, HP's earnings per share were 60 cents on net income of $1.7 billion, up from 14 cents and $400 million in the same period last year. The vendor's non-GAAP earnings per share were 68 cents on net income of $1.9 billion, up from $1.5 billion and and 51 cents in the fourth quarter of 2005. Analysts had estimated earnings of 64 cents.

For the full year, HP's revenue was $91.7 billion, up from $86.7 billion in 2005, and just above analysts' estimates of $91.2 billion.

After making a slew of blade announcements this year, the technology appears to be paying off for HP. (See HP Unveils Blades, HP Adds Storage Blade, HP Unveils Fast Blade.) The vendor unveiled its c-Class product earlier this year, which aims to combine servers, storage, and high-performance computing blades within a single box. (See HP Brandishes Blades and HP Unveils Blade Design.)HP's blade revenues increased 38 percent year-over-year, compared to an increase of 9 percent for industry-standard servers. The results match HP's third-quarter results, where the company enjoyed 37 percent growth in its blade revenues.

Storage was, however, a different story. Midrange storage growth of 11 percent in HP's EVA line was offset by declines in the vendor's high-end array and tape businesses. .) Performance of the vendor's networked storage family was also less than stellar, with growth of just 1 percent year over year. (See HP Storage Gets off the Deck, Brocade, Emulex Team for HP, HP's Relevant Again, and HP Intros New Switches.)

Speaking on tonight's call, Hurd expressed his displeasure about HP's storage business: "We're not happy with our storage growth in the fourth quarter. We need to do a better job of driving topline revenue in the coming year...

"We think that we have a pretty strong product lineup and we have to do a better job in demand creation," he added, in response to a question from an analyst. "We need to go and get more business."

"From a year-over-year perspective, we believe HP's storage growth of only 1 percent reinforced our belief that the company's storage momentum is showing signs of waning growth," said analyst Aaron Rakers of A.G. Edwards, in a guidance note released tonight.The analyst also warned that HP should not get too carried away with the performance of its EVA business, particularly after enjoying 17 percent revenue growth during the third quarter. "We believe HP's relatively lackluster storage results should be viewed as a positive for EMC; most notably HP's decelerating EVA growth," he said.

The overall results at least offer Hurd some respite from the vendor's recent spying scandal -- and the pressures of a major corporate restructuring, which saw 4,200 jobs slashed during the fourth quarter. (See HP Dumps Dunn, Appoints Hurd, Hurd Apologizes, Probe 'Disturbing', Hurd to Speak on Leak Probe, HP Announces Initiative, and HP to Consolidate Data Centers.)

The market responded negatively to HP's quarter. In after-hours trading, shares of HP fell 30 cents (0.75 percent) to $39.86.

James Rogers, Senior Editor, Byte and Switch