A good first quarter, but HP not out of the woods

Hewlett-Packard surprised analysts on Friday when it turned in a better than expected first quarter result.

The good news includes better than expected PC sales and less bad news from the enterprise computing front.

On the down side, the company’s IT services business – mainly from what was EDS before HP acquired the company – saw a seven percent fall in revenue compared with the same period a year ago. Margins in the services business fell to just one percent. Given the IT services business is around 20 percent of the company – it leaves a big hole.

HP on a turnaround programme

The company is about halfway through a turnaround programme lead by CEO Meg Whitman. Some commentators see the good news as signs of green shoots.

Investors are less optimistic. HP’s share price dropped after the results. It’s not often a company beats expectations and the share price still drops.

HP’s underlying problem is shared with the rest of the big, traditional computer companies. I wrote about it on Friday in Is enterprise hardware doomed?

There is no easy way out for HP. But there is a possible path. The results show HP has US$16 billion in the bank – that’s enough to invest in the still, relatively, vibrant software sector. On the other hand, it is less than the US$19 billion Facebook paid for the tiny, relatively new Whatsapp business.