Storage Pushes HP's Profits Up

HP beat analyst estimates with its second quarter results last night, boosted by storage sales and a strong performance from the companys overseas businesses.

The vendor, which announced an agreement to buy outsourcing giant EDS for $13.9 billion and raised its full-year guidance last week, reported second quarter revenues of $28.3 billion, up 11 percent on the same period last year, beating analyst estimates of $28.1 billion.

HP’s earnings per share were 80 cents on net income of $2.8 billion, up from 65 cents and $2.3 billion in the same period last year. On a non-GAAP basis, the vendor’s earnings were 87 cents, up from 80 cents in the year-ago quarter, and above analyst estimates of 85 cents.

“Hewlett-Packard delivered a strong second quarter -- it was strong in almost every dimension we measure,” said the HP CEO Mark Hurd during a conference call last night, explaining that overseas sales accounted for 70 percent of HP’s total second quarter revenues.

In an increasingly tough economic climate, HP’s Americas revenues grew just 4 percent year-over-year, although sales in Europe, the Middle East, and Africa grew 16 percent over the same period, as did sales in the Asia-Pacific region.HP’s Enterprise Storage and Servers (ESS) division reported second quarter revenue of $4.8 billion, up 4 percent on the prior year. Although HP’s Industry Standard Server (ISS) revenues were flat year-over-year, the ESS group's performance was driven largely by sales of blades, which grew 68 percent, and storage, which rose 14 percent year-over-year.

This was fueled by the vendor’s high-end XP line, which grew 21 percent, and the midrange EVA line, which grew 17 percent.

Storage has been something of a mixed bag for HP during recent quarters, although it now seems that the vendor’s attempts to overhaul this part of its business are paying off.

“I think it’s a lot better, so I’m happier,” said Hurd, in response to an analyst’s question last night, but he explained that he would still like to see more from the vendor’s storage business. “We’ve got a lot more work to do to be a participant in the way that HP ought to be a participant in the storage market.”

The CEO added that HP is taking on competitors such as IBM and Sun with what he described as “good old-fashioned blocking and tackling," adding new customers and up-selling into its existing customer base.Analysts also quizzed the exec on the impact of the vendor’s EDS acquisition last night, with Hurd explaining that he expects the deal to extend HP’s reach into “key enterprise accounts," something which would clearly boost storage sales.

At least one analyst thinks that the EDS deal also presents challenges to HP, which is still embroiled in a major effort to consolidate its own data centers. “Outside of the macro[-economic climate], integration hurdles with EDS is the biggest risk,” wrote Goldman Sachs analyst David Bailey, in a note released this morning, but he added that HP should “continue to outperform in the face of weaker demand.”

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