An improved economy helped lift HP’s enterprise business to profitability

HP reported that it turned a profit in all of its businesses as of the final quarter of fiscal 2003, the first time in more than two years the profits included the sales of its enterprise server line scheduled to replace HP 3000s. “While the enterprise environment is improving, it’s tight,” said HP CEO Carly Fiorina in a conference call with analysts. “I think it’s fair to say that enterprise continues to be very tight with the purse strings. And in part that is because they continue to find additional opportunities for consolidating with the IT vendors. It’s fair to say that people are becoming increasingly optimistic, but cautiously optimistic, I would say.”

Because the improvement and the optimism are cautious, HP will continue to drive down headcount in its enterprise computing operations, Fiorina added. “In terms of head count reductions, a good deal of that will continue to go on in the enterprise space,” she said. HP continued to press its advantage in cost reductions to reduce its operating expenses and so produce profits. “The key driver [on operating expenses] was head count,” said HP Chief Financial Officer Robert Wayman, who added that HP would be spending less on travel from now on, too. “I think you will see fundamentally lower travel expenses on an ongoing basis,” he said, perhaps a tough indicator for the Interex user group that needs to get the HP executives and engineers to appear at this year’s Chicago-based HP World 2004.

Whatever the drivers for the report, analysts praised HP for meeting its promise to deliver the numbers as promised. Net income for the fourth quarter which ended on Oct. 31 was $862 million, more than twice the profits from the same period in 2002. Revenue increased by 10 percent for the period, led by higher personal computer sales to $19.85 billion. But earning those market share gains in the highly competitive PC sector kept profits from rising — HP’s still in a price war with Dell. HP also continued a routine in its financial reports: charging off millions in expenses before calcuating profits. This time, $190 million was related to layoffs, for example, before HP calculated its Q4 per share profits. One analyst issued a note saying that investors are becoming wary of such non-Generally Accepted Accounting Practices. HP replied that separating such restructuring expenses probably won’t happen in future reports.

Analysts are still waiting for an HP quarter where the expense reduction don’t contribute to the bottom line as much as sales growth. The enterprise computing unit, selling its last HP 3000s, posted $4.1 billion in revenue. Much of the HP profit came out of the imaging and printing group, where the unit posted more than $1 billion in operating profits for the first time.

Just a few days after the quarterly results, HP reported that the former chief financial officer of Compaq was leaving HP, a surprise resignation that continued a string of executive departures from the company. Jeff Clarke was waiting for Wayman’s CFO position to open up. Clarke was serving as HP head of global operations. Webb McKinney, who helped lead the integration of the two companies, is retiring at the end of this month, and Rene Schuster, the general manager of HP Services consulting and integration, will also leave HP.