Sizing up the big computing players

If HP's recently posted first quarter results are any indication of larger industry trends, things are indeed beginning to look better. Sales in the quarter ended Jan. 31 were up 8% to $31 billion compared to the same period a year ago, and profits jumped 25% to $2.3 billion. In fact, HP is now predicting it will grow 6% to 7% this year.

That's a far cry from 2009 when HP and its computing brethren took it on the chin. Last year, collective sales for the industry's three biggest players -- HP, IBM and Dell -- were off a cool $20 billion, roughly equal to the GDP of Jordan.
Of that group Dell suffered the most, with sales last fiscal year (ending Jan. 29, 2010) falling a whopping 13% to $53 billion and profits off 42% to $1.4 billion. While IBM's sales were also down considerably -- 8% to $96 billion -- it reacted so aggressively it actually managed to end the year with profits up 9% to $13.4 billion.

Revenue-wise HP fared the best. Sales in fiscal 2009, which ended Oct. 31, were only down 3.2%, but that's largely because the company acquired EDS in the middle of 2008 and had that new revenue to report. But even with EDS on the books profits were still off 8% at $7.6 billion.

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If HP's recently posted first quarter results are any indication of larger industry trends, things are indeed beginning to look better. Sales in the quarter ended Jan. 31 were up 8% to $31 billion compared to the same period a year ago, and profits jumped 25% to $2.3 billion. In fact, HP is now predicting it will grow 6% to 7% this year.

That's a far cry from 2009 when HP and its computing brethren took it on the chin. Last year, collective sales for the industry's three biggest players -- HP, IBM and Dell -- were off a cool $20 billion, roughly equal to the GDP of Jordan.
Of that group Dell suffered the most, with sales last fiscal year (ending Jan. 29, 2010) falling a whopping 13% to $53 billion and profits off 42% to $1.4 billion. While IBM's sales were also down considerably -- 8% to $96 billion -- it reacted so aggressively it actually managed to end the year with profits up 9% to $13.4 billion.

Revenue-wise HP fared the best. Sales in fiscal 2009, which ended Oct. 31, were only down 3.2%, but that's largely because the company acquired EDS in the middle of 2008 and had that new revenue to report. But even with EDS on the books profits were still off 8% at $7.6 billion.

Acquiring EDS, however, has enabled HP to nicely round out its offerings, giving it one of the broadest portfolios in the business, a fact the company hopes to leverage to strategic advantage. Services accounted for 30% of HP's revenue last year and that segment has reportedly become the company's most profitable.

IBM of course is the company that first recognized the importance of services and has been at it the longest. Its service revenue passed hardware revenue in 2001 and today dwarfs it, accounting for 57% of sales to hardware's 17%.

Dell was slow to realize the importance of services but last November moved to make up for lost time by acquiring Perot Systems for $3.9 billion.

But even as the big three grow more similar, the market continues to evolve around them. It will be interesting to watch, for example, what Oracle will do with the Sun Microsystems assets it acquired for $7.4 billion, how HP will try to leverage the network expertise it acquired with the purchase of 3Com, and what Cisco's bold new entrance into computing will mean.
Perhaps more fundamental will be the shifts driven by the emergence of cloud computing. As much change as we've seen already, it is likely we're in for a boatload more.

Read more about cloud computing in Network World's Cloud Computing section.