Storage Shines for HP

Storage and blade servers highlighted HP's positive third quarter, the clearest sign yet that the vendor is moving beyond its turnaround status and into real growth. (See HP Announces Earnings.)

HP's Enterprise Storage and Servers (ESS) division reported revenues of $4.1 billion, up 3 percent on the same period last year. Although HP did not break out specific figures, revenues from the firm's midrange EVA line were up 17 percent on the same period last year, and networked storage was up 5 percent, led by sales of external arrays.

Blade server results were also strong, with revenues rising 37 percent year over year. (See HP Brandishes Blades and HP Unveils Blade Design.) "Our business reflects what we see going on in market trends," explained HP CEO Mark Hurd during last night's conference call. "Lots of people are going to virtual servers, which means a lot of blades."

HP's traditional server business presented more of a mixed bag. Revenues from the vendor's business-critical systems operation, which includes PA-RISC and Alpha servers, fell 6 percent, although revenue from Integrity devices rose 76 percent year over year.

This can be attributed to the ongoing decline of the Unix market and significant unease among end-users, according to Daniel Renouard, an analyst at Robert W. Baird & Co. "We believe enterprise concern over HP's mid- [to] high-end server product roadmap is a primary driver of the weakness," he wrote in a guidance note released this morning.HP is also still feeling some of the fallout from a turbulent period in its history, characterized by major restructuring, job losses, and the departure of former CEO Carly Fiorina. (See HP CEO Steps Down.)

Execs on last night's conference call said its restructuring efforts continue. Bob Wayman, HP's CFO, said that the firm aims to cut the last of about 15,000 job by the end of October. "We expect to be virtually complete by the end of the Q4," he added.

But Hurd admitted that HP still has plenty to do overhauling its own internal systems. (See HP to Shrink 'n' Save and HP Reports Q2.) "In terms of IT, we still have a lot of work to do," he said. "The work in IT will stretch out through '08."

The third-quarter results do, however, underline the wisdom of HP's decision to keep its storage business. Last year there was speculation that the vendor might sell off its then-troubled storage operation, particularly when Hurd took the company's reins from Fiorina. (See HP Plots New Course, High Hopes in Palo Alto, and Poll: HP Should Keep Storage.)

Since then HP has refocused its energies on storage, unveiling a major upgrade of its midrange EVA family of products last year and new products earlier this year. (See HP Plans EVA Facelift, HP Hoists New Storage Products, HP Plans HW/SW Upgrades, IBM Expands 4-Gbit/s & Backup, and HP Storage Gets off the Deck.)Across its entire business, HP reported revenues of $21.9 billion, up 5 percent year over year, and slightly above analyst estimates of $21.8 billion. On a GAAP basis, HP reported earnings per share of 48 cents, up three cents on the year-ago quarter, and also just above analyst estimates of 47 cents.

In trading today, shares of HP rose $1.45 (4.21 percent) to $35.88.

James Rogers, Senior Editor, Byte and Switch