UK drags HP services growth

(By Anthony Miller). Although operating margins in HP’s EDS-bolstered services unit rose 50 bps yoy to 12.8% in 1Q09 (to 31st Jan. ’09), revenues on a proforma basis fell 15% to $8.7bn. Management attributed half this drop to the unfavourable British currency, but most of the rest was a ‘real’ demand decline in its applications services business as ‘discretionary’ project work – especially the add-on ‘cream’ on major outsourcing contracts – fell away. Nonetheless, HP CEO Mark Hurd reported that the EDS integration was ahead of schedule, with 9,000 employees already laid off. He also mooted that the Satyam saga has resulted in increased customer interest in HP's services.

HP has reclassified the way it reports services revenues as the prior Outsourcing Services, Consulting & Integration and EDS business units have been "disintegrated”. IT Outsourcing now represents 45% of HP’s services business, with Technology Services (i.e. maintenance) 28%, and Application Services at 18%. BPO is still under 1% of services revenues. I hope to get a better view of HP’s European services business on Thursday pm and will add more then.

For the record, HP’s hardware businesses generally had a grim quarter. In its PC business, an 8% yoy increase in notebook volumes was not enough to offset a 13% revenue decline. Undoubtedly some of the notebook volume increase came from netbooks; Hurd reckons 80% of netbooks sales are new business, i.e. only 20% is cannibalising HP’s other PC business. Desktop PCs did poorly, with volumes down 15% and revenues down 25%. Printer volumes were down 33% and even the highly profitable supplies business saw revenues fall 7%. Enterprise Storage and Server revenues fell 18%.