HP Results: Improving, but Still Mixed

It’s difficult to tell if IT industry stalwart Hewlett-Packard (HPQ) is shaking off the doldrums or just doing a better job at minimizing its losses. While the vendor posted better-than-expected sales and earnings for its Q4 2013, many of its product segments underperformed. So is HP just managing its losses better, or is it making real progress?

For its Q4 ended Oct. 31, HP posted $29.1 billion in sales, down 3 percent year over year, but recorded $1.4 billion in GAAP earnings, or 73 cents a share, as compared to the $3.49 per share it lost last year at this time. Earnings for the quarter were slightly better than expectations and sales much stronger than the $28 billion forecast.

And, HP finished the year a far cry from FY 2012, when it suffered a $12.7 billion loss that included nearly $17 billion in write-downs.

Still, HP posted that handsome Q4 profit amid declining sales fell for the third year in a row as the vendor closed 2013 with $112.3 billion in revenue, nearly a 7 percent dip from last year.

So which is it for HP, getting better or not really? Here’s a mix of the good and not-so-good, how the vendor’s segments fared in Q4 compared to last year:

PCs:
Overall revenue down 2 percent, but unit sales up 10 percent. Business PC sales up 4 percent but consumer PC sales down 10 percent. Desktops sales fell 5 percent but notebooks rose 3 percent.

Printers:
Sales fell 1 percent year over year with total units moved up 6 percent. Printer sales to businesses rose 9 percent and consumer sales were up 4 percent. But sales of printer supplies, ink cartridges and the like, an important margin category for HP, fell 4 percent.

Networking, servers, storage, services:
Overall, Enterprise Group sales ticked up 2 percent. Networking was up 3 percent, x86 servers climbed 10 percent and storage was up 1 percent. But Business Critical Systems revenue fell 17 percent and technology services slid 6 percent.

Enterprise Services:
Revenue tumbled 9 percent as Application and Business Services sales fell 10 percent and Infrastructure Technology Outsourcing revenue declined 9 percent.

Software:
Sales fell 9 percent, with sales from licenses falling 24 percent. But the vendor’s SaaS revenue spiked 15 percent.

Financial Services:
Revenue fell 6 percent year over year with a 5 percent decrease in net assets and a 3 percent decline in volume.

AllThingsD posted some interesting remarks from an interview with HP chief executive Meg Whitman on the vendor’s Q4 performance. Here’s a summary:

On PCs:
“It has struggled for two years, and we turned in pretty good performance there. It was down a bit, but not as bad as we’ve seen recently, and commercial PCs were particularly strong.”

On Enterprise Services:
“We actually feel good about a more predictable business there.”

On the Enterprise Group:
“It’s a validation of our products and our go-to-market strategy.”

Overall, on Q4:
“Turnarounds are nonlinear, and this happens to have been a very strong quarter for us.”

If you agree, as AllThingsD so eloquently put it, that “slightly down is the new up,” then Whitman’s position is a bit more tenable. And, it’s backed by HP improving its net debt position by $1.3 billion during the quarter, the seventh consecutive quarterly improvement of at least $1 billion.

As for the 2014 fiscal year, HP projected Q1 2014 earnings of between 82 cents and 86 cents a share and $3.55 to $3.75 a share for the full year. Without doubt, it will be an important year for HP to see if it can continue to accurately measure the global PC decline and stay buoyant in the hotly competitive enterprise segment while avoiding purposeless spending and strengthening its balance sheet.