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HP's Losses Mount as Itanium Server Line Falters

By Sean Michael Kerner (Send Email)
Posted November 20, 2012


HP reported its fourth quarter fiscal 2012 and full year results this morning, showing continued challenges in its Itanium server business.

For the quarter, HP reported net revenue of $30.0 billion, for a 7 percent year-over-year decline. For the full year, revenue came in at $120 billion, down by 5 percent from 2011. HP reported a net loss of $6.9 billion for the fourth quarter and a net loss of $12.7 billion for the full year.

One of the largest items impacting HP during the fourth quarter is an $8.8 billion dollar impairment charge related to alleged accounting wrongdoing.

"The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP's acquisition of Autonomy and the associated impact on the expected financial performance of the business over the long term," HP CEO Meg Whitman said during the company's earnings call.

While the Autonomy writedown is a big ticket item on HP's books, HP's server business is also facing some challenges. HP's Enterprise Servers, Storage and Networking (ESSN) unit reported revenue of $5.1 billion, which is a 9 percent year over year decline.

HP Itanium ServersThe Itanium server segment in particular was highlighted by HP's CFO.

"Overall, business-critical systems revenue declined 25% year-over-year," Catherine Lesjak, HP CFO, said during the earnings call. "Within BCS, mission-critical x86 was up over 25 percent, but the BCS performance was again impacted by the persistent Itanium revenue decline."

HP remains the only major server hardware that is committed to Itanium. In August, HP successfully won a legal challenge against Oracle over Itanium support. Oracle had publicly stated that it was going to pull its software for support for Itanium, which is a position that it has now reversed.

Earlier this month, Intel launched a new line of Itanium 9500 Poulson processors that HP will be including in its next-generation Business Critical Systems servers.

HP's Industry Standard Servers are also facing some challenges. Whitman noted that HP's Gen8 server rollout continues to track positively, although the company has seen pressures on pricing and margins as it continues to work to improve general execution.

HP's Gen8 Servers were first announced in February and include the latest Intel Xeon E5 processor family.

"One of the things we got to focus on is our mainstream Industry Standard Server business, which is the weak spot here, and we are doing a whole host of work around our channel relationships in that business, around supply chain improvements, reconfiguring some of the products to be more affordable to certain segments of the market," Whitman said.

"I think Dave Donatelli has got an excellent plan in place," continued Whitman, "and he and his organization are going to execute against that in the first half, and I think you'll see some improvements in the second half."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.

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