MoneyWatch Tech

HP Earnings: Actually, Nothing Looks Good but Corporate Spending

By Erik Sherman

Updated on: November 22, 2010 / 6:21 PM EST / MoneyWatch

Hewlett-Packard's (HPQ) fourth quarter earnings beat analyst expectations -- but growth for the company is slowing in all sectors but one. And that leaves HP increasingly reliant on corporate customers who are ramping up infrastructure purchases that had been back-burnered during the economic slowdown.

In its earnings announcement for the previous quarter, HP had the following distribution of revenue (quarterly growth is compared to the same period in fiscal year 2009):

Enterprise Storage and Servers, up 19 percent
Personal Systems Group (PCs), up 12 percent
Services, up 1 percent
Software, up 2 percent
Imaging and Printing, up 9 percent
Financial Services, up 14 percent

At the time, I said the following:

This sounds like HP floated on the need of companies to finally pay for system upgrades they had long put off because of the economy. But if the future is really, really cheap hardware, vendors need to find other ways to make money. Having software and services, two obvious categories, be essentially flat is bad news.

Here is the same breakdown, from HP's earnings release, for this quarter:

Enterprise Storage and Servers, up 24.9 percent
Personal Systems Group (PCs), up 4.2 percent
Services, up 0.4 percent
Software, up 0.7 percent
Imaging and Printing, up 8.4 percent
Financial Services, up 11.4 percent

Notice that the only category whose growth increased was enterprise storage and servers, which was probably due to more infrastructure replacement. PC growth was down, but even more telling is that notebook unit sales were down by 3 percent, but desktop PC unit sales were up by 13 percent. That would reinforce the idea that corporate buyers are replacing equipment, as the general trend among consumers has to move more toward laptops and notebooks and away from desktops.

What seems odd is that services and major IT sales should have some relationship. And yet services -- supposed to be a driving factor for HP, which is why the company originally acquired consulting firm EDS -- are flat. As I said about Dell, this smells like a company that deeply discounts, or even gives away, its services to help nail down hardware deals. Which is ultimately a losing proposition for HP.

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Image: Flickr user clayirving, CC 2.0.