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HP takes one in the servers

Hurd hails 3Com 'convergence'

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Comment Well, it looks the enterprise slammed on the server spending brakes a lot quicker and a lot harder than smaller outfits this fall.

HP released its fourth quarter earnings yesterday, and its Enterprise Storage and Servers group took a serious hit, with sales down 16.6 per cent to $4.22bn in the quarter ended October 31.

The unit posted operating earnings of $481m, down 31.8 per cent - so if you think there's no price war going on in the server and storage rackets, well, forget that. However, biz is better for ESS than it was in the prior quarter, which ended in July, when the unit posted $3.74bn in sales and only $381m in operating earnings.

Within ESS, sales of ProLiant rack, tower, and blade servers and related BladeSystem blade chassis, all cobbled together into the Industry Standard Server division, came to $2.67bn in fiscal Q4, down 10.3 per cent. The Business Critical Systems division (including Integrity and NonStop systems based on Itanium processors as well as prior HP-9000, AlphaServer, and NonStop upgrades, where available) took it on the chin with only $631m in sales, down 32.5 per cent.

HP's cross-platform blade sales (including x64 and Itanium blades running Windows, Linux, HP-UX, NonStop, or OpenVMS) fell by only 8 per cent, a relative bright spot in a pretty dismal quarter.

Speaking on a conference call with Wall Street analysts, HP chief financial officer Cathie Lesjak said that the ProLiant G6 machines, based on the latest Xeon processors from Intel and the most current Opterons from Advanced Micro Devices, accounted for 60 per cent of Industry Standard Server sales.

Mark Hurd, HP's president, chief executive officer, and chairman, said that the power, cooling, and performance benefits of the G6 allow HP's sales reps and reseller partners to make an economic case for the ProLiant G6 lineup, offering a twelve-month payback when upgrading from ProLiant G5 machines and a three-month payback when upgrading from even earlier ProLiant G4 iron.

"In my experience, any deal with a payback of a year or less is easy to close given the value to the customer," Hurd said.

Yeah, but you cannot push a string, as the server and storage rackets so clearly demonstrate in this economic downturn. And with commodity prices on the rise - particularly server memory - and prices under pressure, profits suffer.

Like IBM, HP's server sales were a little bit better than the market at large over the period - not nearly as good as Dell, but nowhere near as bad as Sun Microsystems. In the quarter ended in October, Dell's server and networking business posted sales of $1.54bn, down only 6 per cent. You can see who sells more servers to enterprises and who sells more to SMBs who buy when they have no choice, no matter what the state of the economy.

HP's combined enterprise disk and tape storage business accounted for $918m in revenues in the quarter, down 20 per cent year-on-year but up 11.4 per cent sequentially. (El Reg already took a scalpel to HP's enterprise storage biz here.)

For the full fiscal year, the ESS group at HP had sales of $15.4bn, down 20.8 per cent, with ProLiant boxes generating $9.3bn in sales, down 20.3 per cent, and BCS boxes making up $2.6bn in sales, down 26.8 per cent.

Speaking of the pending $2.7bn 3Com acquisition, Hurd said that the deal was consistent with HP's vision of converged infrastructure - something that Cisco Systems and partner EMC want to peddle and something that both IBM and Oracle/Sun are also starting to espouse, under various names, of course.

"We have had a strategy around converged infrastructure for some period of time, that for us is the ability to give customers the opportunity to see server, storage, and networking all sort of working together in a common capability that we can deliver to customers either as a service or directly to them. Our strategy has been consistent," Hurd said.

"We think with ProCurve and with what we get through the 3Com acquisition added to our VirtualConnect software, we now bring an extremely robust networking solution to market both from trying to reduce the number of ports that customers have to buy but added to it the fact that we can bring great technology for the ports that the customers do have to deploy. We are very optimistic and obviously very excited about it, and we are just going to go through the process to get the acquisition closed and get the work done and get it to market." ®

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