EDS earnings put a shine on lacklustre HP results

Hardware and software sales down but European chief predicts corporate IT spending will increase next year

HP is finding hardware and software sales hard to come by

HP saw adjusted net income for its third financial quarter fall 19 per cent from $2bn (£1.2bn) to $1.6bn (£974m) compared to the same period in the previous year.

Though the results beat expectations, it was only record profits from the recently-acquired EDS services arm which brightened an otherwise disappointing picture that saw uniform declines in profit and revenue from hardware and software.

Services revenue increased 93 per cent to $8.5bn (£5.2bn), while enterprise storage and servers reported a 23 per cent decline in sales value compared to the third quarter of fiscal year 2008.

There was a similar story in HP’s software group, down 22 per cent year on year to $847m (£516m), the personal systems group - down 18 per cent to $8.4bn (£5.1bn) - and imaging and printing group - down 20 per cent to $5.7bn (£3.5bn). The figures show the extent to which HP, like other vendors, has recently struggled to find buyers for its hardware and software products.

HP technology solutions group vice president and European managing director Francesco Serafini acknowledged that corporate demand for hardware and software in Europe remained "soft" as companies delay new investment, while fierce competition in the consumer desktop and notebook PC market has eroded profits due to lower average selling prices.

“The industry is less focused on action to deliver short-term gain and more focused on preparing for the turn around,” he said.

“Overall, we have seen enterprise customers postpone spending on new equipment, though there may still be indirect opportunities in the public sector as various EU governments try to inject stimulus into national economies.”

Nevertheless, Serafini believes that back-to-school and Christmas spending on new computers and printers will boost European consumer sales in the next quarter, while enterprise spending should pick up in next year.

“The fourth quarter is typically a stronger quarter, and we are introducing new consumer PC and printer products in time for the start of the new school year and Christmas,” he said.

“There are currently signs of stabilisation in the US enterprise market, and the EU tends to be around two to three quarters behind that, so we will see something here early next year. We expect businesses to start spending on datacentre transformation to lower operational costs.”

HP has predicted that global revenue will grow eight per cent in the next quarter, though much of this growth is likely to come from US and Chinese markets.

Serafini pointed to the fact that the company has improved its gross cash assets to $13.7bn (£8.3bn) as an indication that HP will continue to invest in new market opportunities and its own operational efficiency in the coming year.

"HP made several acquisitions over the last few year and good cashflow can be used to make investments and boost the supply chain,” said Serafini.