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Dismal Quarter for HP Servers, Storage

Three top executives were replaced at HP after a disappointing quarter for the company's enterprise servers and storage business unit.

HP reported preliminary financial results on Thursday for its third quarter, which ended July 31. Although revenues were up 9 percent to $18.9 billion, earnings were below analysts expectations and HP warned that it will miss Wall Street forecasts for its fourth quarter.

HP's news came on the same day that competitor Dell reported strong growth in sales and profits in line with analysts expectations. Shares of HP closed more than 13 percent lower on Thursday.

"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage, Carly Fiorina, HP chairman and chief executive officer, said in a statement. "We therefore are making immediate management changes. We are also accelerating our margin improvement plans in this business. With these changes, we expect our server and storage business to return to profitability in the fourth quarter."

In an internal e-mail to HP employees that was obtained by the Reuters news service, Fiorina said the company will immediately replace Peter Blackmore as head of the Customer Solutions Group, which handles direct sales to HP's business and government customers. The group's senior vice president and managing director for the Americas region, Jim Milton, and Milton's EMEA counterpart, Kasper Rorsted, are also being replaced.

According to HP's public announcement, enterprise servers and storage revenues were down 5 percent for the quarter to $3.4 billion, for a loss of $208 million. While Unix revenues were up 8 percent, Alpha was down 32 percent and NonStop was down 25 percent. Total storage revenues were down 15 percent to $709 million.

HP blamed a disruptive migration to a new order processing and supply chain system in the United States, channel management problems in Europe and the general collapse of HP's storage business.

Dell revenue for its second quarter, ended July 30 hit a record $11.7 billion, a 20 percent increase over the same quarter in 2003. Earnings per share were 31 cents on net income of $799 million. In contrast with HP, the company boasted that its enterprise systems, which include servers and storage systems, accounted for 22 percent of overall sales to match a company high.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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