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HP printer, server, and PC sales in double digit dip

EDS saves bacon

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Wall Street has been waiting on the edge of its window ledge seat to see how IT giant Hewlett-Packard performed during its first fiscal quarter of the year. And they can finally relax. HP reported sales of $28.8bn, up 1.2 per cent, and net earnings came in at $1.85bn, down 13.1 per cent compared to the year-ago quarter.

Just think of how ugly the financial report coming out of Hewlett-Packard this afternoon would have been had the company not acquired services rival Electronic Data Systems last year.

It would have been ugly indeed, with PC, server, and printer sales all declining in the double digits, and earnings from operations declining at even faster rates. It would have been a magnificent, Carly Fiorina-style swoon. Of course, given the economic climate, if EDS hadn't saved the quarter, you wouldn't see HP booting chairman and chief executive officer Mark Hurd. Who would replace him?

Who knows if the $13.9bn EDS acquisition will make sense over the long haul, but for a few quarters, HP will be able to use the combination to make it look like its business is more stable than other IT players. Which is why company mergers should require the merging of financials for the prior year - so you can make an honest assessment of how the business actually grew or didn't.

But this is the IT business, and we are looking for some good news. So let's get on with the bad news in HP's numbers, which will come as little surprise to anyone. With the economic meltdown spanning HP's Q1 and companies slamming the brakes on IT spending so hard they sprained their ankles - a few even put their feet through the floorboards - sharp declines in PC and server spending are no shocker.

HP's Personal Systems Group - which has been smacking Dell around for the past two years - took some punches from the much bigger global economy. (There's always something rougher and tougher than yourself). PSG's sales fell by 18.6 per cent in the quarter, to $8.79bn. Notebook sales fell by 13.4 per cent, to $4.91bn against unit shipment growth of 8 per cent, while desktop sales fell by 25 per cent to $3.3bn as units slammed down 15 per cent.

Workstation sales dropped by 27.9 per cent to $333m. Across all PC types, unit shipments fell by 4 per cent, so to say there was a magnificent drop in the average selling prices of PCs in the quarter is an understatement. It looks like customers that might have bought beefy desktops instead decided on cheap laptops. This accounts for PSG's earnings from operations falling by 30.7 per cent to $435m.

Over in the Enterprise Storage and Servers division - which is supposed to be a profit engine for HP but only sometimes pulls its own weight - sales were down 18.1 per cent to $3.95bn, and earnings from operations took a swan dive of 39.8 per cent to $405m. Within ESS, Industry Standard Servers (that's the ProLiant and BladeSystem brands) had sales of $2.32bn, down 22.3 per cent, while Business Critical Systems (which means Integrity and various legacy Unix and OpenVMS systems) slumped 16.6 per cent to $713m.

Itanium-based Integrity server sales fell by only 5 percent, accounting for all but $100m in BCS sales. Obviously, sales of Alpha and PA-RISC servers all but stopped. Cathie Lesjak, HP's chief financial officer, said that BladeSystem sales rose by 4 per cent in the quarter but that ISS and BCS both saw a shift in mix to cheaper products. In January, customers deferred spending on new iron. She added that HP thinks it gained three points of market share in the x64 server space in the fourth quarter of calendar 2008. HP's storage sales were not hit as hard as that for servers, storage sales still declined by 6.6 per cent to $913m.

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