In May 2007, a careless employee of IT giant HP accidentally emailed the company’s forthcoming financial results to somebody outside the organisation. It was an embarrassing gaffe for the company, which was forced to readjust its earnings guidance, but it is hard to believe executives were too upset: so impressive were the leaked results.
In late 2006, HP overtook IBM as the world’s largest technology company, as measured by revenues. And in its second financial quarter of 2007, it showed no sign of giving any ground.
Total revenues for these latest three months hit $25.5 billion, up 13% compared to the same period last year. That puts the company on track to break the $100 billion annual revenues threshold in fiscal 2007, a feat that has never been achieved in the IT sector.
Net earnings were technically down, but in the year-ago quarter the company received a significant tax benefit, skewing the comparison.
The star performing business unit was the Personal Systems Group. Shipments of PCs and laptops grew by 30% over the year, driving 24% growth in revenue for the division, which reached $8.7 billion. This was mainly driven by the consumer market, where sales grew by 41%; sales to businesses rose by a still-robust 13%.
According to CEO Mark Hurd, HP’s PC operation is currently growing at twice the pace of the market. The release of Microsoft’s latest operating system, Vista, contributed in part, but it was the global coverage of its reseller channel that made HP stand out, he said. (Meanwhile, rival PC seller Dell, whose sole reliance on its direct sales channel used to be its defining feature, announced this month that it will start engaging with third-party resellers.)
So dramatically has the PC division grown that it has overtaken HP’s Imaging and Printing arm – for long its only world-leading business – in revenue contributions. That unit brought in $7.2 billion in sales, just 6% more than in the year-earlier period.
The picture also looked good elsewhere. Market researcher IDC recently reported that HP has led the world in server shipments for 20 consecutive quarters. In this latest quarter, the company’s Enterprise Storage and Servers unit chalked up an 8% rise in revenues to $4.6 billion. And HP’s fast-expanding software division doubled its revenues to reach $523 million, largely as a result of its late 2006 acquisition of applications management software vendor Mercury Interactive.
These results shine favourably upon Hurd, the man brought in to reverse HP’s fortunes, although he is far from complacent. “HP is still transforming,” he told analysts. “We still need to reduce costs so we can reinvest in the business."
But perhaps his predecessor, Carly Fiorina, deserves some of the credit. It was the acquisition of PC maker Compaq in 2002, which she pushed through despite formidable opposition within the company, that put HP on the road to dominance in the sector.
Net gains
There were equally impressive numbers in May 2007 from one of the few major sectors that HP has chosen not to pursue: networking. Cisco, the world’s largest manufacturer of networking equipment, reported staggering revenue growth of 21% in its third quarter, taking revenues for the period to $8.9 billion.
It was Cisco’s interests outside of its core networking kit that generated much of this pace. Scientific Altanta, the manufacturer of TV set-top boxes that Cisco bought in 2005, grew its revenues by 30% over the year, contributing $752 million to its parent.
This adds further legitimacy to the company’s diversification strategy, which in recent months has seen Cisco add web conferencing company WebEx and social networking software provider Tribe.net. CEO John Chambers is confident that push into Web 2.0 technologies will pay off. “Our vision for the network as a platform for all forms of communications and IT has become a reality," he told analysts.
Cisco’s success was not wholly at the expense of its competitors. Level 3 Communications, which offers network management services and supports a significant tranche of the Internet, grew its revenues by 28% over the year to reach just over $1 billion.
In that period, however, the company also incurred a $427 million charge, associated with restructuring $3 billion worth of debt. The company’s heavy acquisition activity – it has bought seven companies since the end of 2005 – has effectively trashed its bottom line, but CEO James Crowe believes that strategy will pay out in the end. “While we see opportunities to improve our balance sheet, we think the heavy lifting is behind us,” said Crowe.
Meanwhile, F5 Networks, which makes equipment for optimising application performance over wide area networks, grew by 36% to reach $126 million revenues. Gartner recently rated F5 ahead of its rivals – Citrix, Cisco and Akamai – in the application delivery products sector for its ability to execute and its completeness of vision.
Dimension Data, a South African network and IT services provider, grew its revenues by 22% to reach $3.3 billion for the first half of fiscal 2007. The company said that its fastest growing businesses were network integration, which jumped up by 20.5%, and converged communications, which surged 63.8%. That performance enabled the London-listed company to double its half-yearly profits by 50%.
