On 19 May 2009, HP announced the results of its second fiscal quarter, which ended 30 April 2009, reporting earnings per share of $0.86 according to generally accepted accounting principles (GAAP), with net revenue of $27.4 billion.

HP's second-fiscal-quarter results reflect the dismal state of the global economy as of late April 2009 and offer no meaningful signs of an IT industry recovery. Buyers continue to cancel and defer hardware purchases, resulting in substantial declines in HP's sales of standard and advanced servers (down 29%), personal computers (down 19%), printers (down 23%) and storage offerings (down 22%). The decline in sales of blade servers (down 12%) and notebook computers (down 13%) reflects the market's limited appetite for new technologies. HP CEO Mark Hurd did state that China, and U.S. consumers, looked slightly better, an assumption Gartner is working into our forecasts.

PC purchases are an indicator of whether consumer spending is recovering, which is a necessary precursor for economic recovery. HP's report of flat sales of PC units reflect a substantial decline in prices as buyers opt to purchase lower-priced products. Global consumers have experienced the rise in the value of the U.S. dollar as a price increase, which drives them to buy downmarket. Gartner expects the consumer PC market to exhibit the first signs of recovery for the IT industry, but HP's revenue from this market is still down 16%.

Service revenue is a bright spot in HP's earnings results. For the first time in HP’s history, the vendor reports that services are the single largest operating unit by revenue. Global revenue from the company's EDS acquisition has dropped by approximately 12% (6% in local currency), according to Gartner's estimate; nonetheless, it has helped fill the gap left by the systems market, enabling HP to report 3% growth in local currency (down 3% in U.S. dollars). HP's overall services business delivered a healthy $1.17 billion in profit, despite its struggle against a stronger dollar and weak market, evidence that the acquisition is working. Gartner believes that HP achieved about a third of its services profits through a one-time, one-month 10% pay cut for EDS employees in April 2009, compounded with a companywide 5% pay cut for most salaried employees. This cost-cutting strategy is a necessary and effective response to the economic downturn, and will enable HP to maintain its options for growth ahead of the recovery. Overall, we estimate that HP’s revenue is down approximately 18% compared with revenue earned by EDS and HP separately as of April 2008. This drop emphasizes HP’s exposure to volatile systems markets, and underscores its need to move from tactical IT purchases to strategic business relationships.

Enterprises:

• Continue to plan for the economic downturn. Gartner sees no evidence of resumed consumer spending levels in HP’s results; we interpret the lack of movement as an unsurprising bad sign for the global economy.
• Do not be surprised by a recovery. HP recognized some improvement in the Chinese and the U.S. consumer markets. If opportunities arise during 2Q09 and 3Q09, the IT industry must be ready to support growth requirements.

• "Vendor Rating: HP” — HP is expanding beyond its traditional domain of hardware and software offerings and growing its service business, changing its profile in the IT market. By David Cearley and others
• "It's Time to Prepare for a Return to Business Growth” — Gartner advises our clients to ignore the negative financial press coverage and prepare for a return to business growth, regardless of when that growth actually returns. By Ken McGee and Mark Raskino

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