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Business Briefing

HP Focus on Enterprise Hardware Begins To Pay Off

HP Focus on Enterprise Hardware Begins To Pay Off
February 21, 2014 1:47PM

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"I do think we will now be considering acquisitions," said HP CEO and President Meg Whitman on HP's earnings call. "As this market changes very dramatically, you can see we may need acquisitions in security, big data, mobility and cloud." HP is likely to focus on enterprise-solution acquisitions, given the company's success in that area.

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Meg Whitman is proving she's the man, er, the woman. Hewlett-Packard may not be where it needs to be, but the former eBay chief at least beat Wall Street's expectations with her push to focus on enterprise hardware.

Many analysts were predicting a significant drop in HP's quarterly revenue but that wasn't the case. HP netted $28.2 billion, down only 1 percent from the prior-year period and flat on a constant currency basis. HP also improved its operating company net cash position by $1.6 billion. That's the eighth consecutive quarterly improvement of more than $1 billion.

"HP is in a stronger position today than we've been in quite some time," said Whitman, HP president and CEO. "The progress we're making is reflected in growth across several parts of our portfolio, the growing strength of our balance sheet, and the strong support we're receiving from customers and channel partners. Innovation is igniting our comeback, and at a time when many of our competitors are confronting new challenges, two years of turnaround work is setting us up for an exciting future."

Considering Acquisitions

Whitman didn't stop there. After working through some of the failed acquisitions her predecessors left her to clean up, she's now ready to venture into the buying field once again.

"I do think we will now be considering acquisitions," Whitman said on HP's earnings call Thursday. "As this market changes very dramatically, you can see we may need acquisitions in security, big data, mobility and cloud."

HP is likely to focus on enterprise acquisitions, given the company's success in this area. Enterprise Group revenue was up 1 percent year-over-year with a 14.4 percent operating margin. Industry Standard Servers revenue was up 6 percent; Storage revenue was flat; and Networking revenue was up 4 percent. Even revenue from H-P's Personal Computer Group which had been predicted to decline, was instead up 4 percent, to $8.5 billion, on the strength of enterprise sales.

What to Buy?

We asked Rob Enderle, a principal analyst at The Enderle Group, for his take on what HP may acquire or divest. He told us Whitman has been around HP long enough to understand what's working and what's not and is now in a good spot to decide what she can get rid of that is no longer strategic and strengthen aspects of the company that need help.

"HP still needs to shore up software quite a bit for where they want to go, so I would expect them to make acquisitions on the software side to build that unit out," Enderle said. "There's been a long discussion at HP about getting rid of printers as non-strategic or even doing what IBM did and think about getting rid of PCs."

As Enderle sees it, the problem with getting rid of PCs is it stresses potential synergies on the server side of the business. Printers are another story.

"Printers hasn't worked out all that well," Enderle said. "It doesn't fit all that well with any other aspect of HP's business, so I would look at that as an area where they might want to divest."

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