HP profits up 14 per cent, despite falling sales

Services business and cost-cutting measures mean profits rise and disgruntled staff

HP has reported a profits rise of 14 per cent over the last quarter as a result of strong performance in services and signings, and a series of cost-cutting measures.

The same quarter saw a drop in revenues of 8.4 per cent.

Overall revenue fell to $30.8bn from $33.6bn last year, but profits rose from $2.1bn to $2.4bn.

It was a bad quarter for the four traditional areas of HP’s business, with all four reporting a fall in revenues alongside the rise in profits. However, revenue in the services division rose eight per cent and cost cutting by the company had a positive effect on the bottom line.

“HP’s solid performance in services drove record profit, and the accelerated pace in signings creates strong momentum going into 2010,” said Mark Hurd, chief executive officer of HP.

“Our operational execution and improving cost structure generated strong quarterly and year-end results. We expect to outperform the market due to our significant scale, broad portfolio and market-leading position.”

The services division, which includes EDS, saw profits rise over five per cent to $1.4bn. Hurd said that the integration of EDS was ahead of schedule and the division had seen an increase in new contract signings.

HP’s PC division had a tough quarter, with profits hurt by discounting prices. Shipments were up eight per cent overall, but revenues fell by 12 per cent. Desktop PCs were hardest hit, with revenues down 16 per cent, double the fall for laptops.

Server revenues fell 17 per cent, and while blade systems revenue fell only eight per cent, more specialised systems were harder hit, with Business Critical Systems revenues falling by a third.

The printing division suffered most, with overall revenues down 15 per cent and shipments falling 20 per cent. Commercial printing hardware had a particularly bad quarter, with revenues down 38 per cent.

Overall, Hurd said the "economy remains challenging, but we see encouraging signs of recovery".

This rise in profits comes after last week's news that more than 750 HP employees have voted to strike over the announcement of 1,000 potential redundancies and changes to pay conditions. They are being represented by trade union Unite.

The redundancies and changes to pay conditions are the most recent in a series of cost-cutting measures that have seen the companies profits rise in Q4. They follow job cuts of 3,400 staff since Hewlett Packard bought EDS in 2008.

Peter Skyte, Unite national officer for IT and communications, warned of the possibility of more action to come and called on HP to make some changes.

He said: "This is likely to be the first of several industrial actions at HP unless the company rethinks its policy of sacrificing the terms and conditions of its workforce for stock exchange-driven short-term financial targets aimed at enriching its senior executives."