Earnings reports from technology bellwethers Hewlett-Packard and Dell this week weren’t exactly confidence boosters. Both companies signalled lackluster IT spending as the cause for quarterly revenue declines, underscoring the need for technology solution providers to continue diversify their own revenue mixes — and vendor relationships — into software and services as quickly as possible.
Here are the numbers for quick reference.
HP recorded net revenue of $30.7 billion for the second fiscal quarter ended April 30, 2012, down 3 percent. Income was also off. Mind you, quarterly revenue of almost $31 billion is nothing to sneeze at, and these results were actually better than the company’s projections. And, astonishing, the company’s PC business managed to come in flat (with $9.5 billion in revenue). So, if you are OK with the status quo, you probably don’t mind.
Dell’s revenue for its first fiscal quarter was $14.4 billion, off 4 percent from the year-earlier period. The good news is that it realized increases for its services, server and networking businesses. The bad news for solution providers is that Dell continues to push its services agenda, which may or may not include them.
For me, there was another troubling question raised by this week’s earnings reports: How quickly can these companies make innovation pay off in their product lines as the technology market shifts?
These results make me wonder how well poised either company is to make it through the technology market overhaul that is being driven by mobile technology, the rise of purpose-built enterprise software applications such as Salesforce.com and the drive for analytics technologies that are easy for the line-of-business person to use — not a rocket scientist.
Exhibit A: Yet again, HP is relying on a massive restructuring to hopefully get its financial house in order. (How many times have we seen this script in the last decade?) This time, it plans to cut about 27,000 jobs over the next two years. Mind you, it plans to plow the roughly $3 billion to $3.5 billion in estimated savings back into research and development for cloud computing and “big data” analytics technologies.
But I find myself wondering whether HP can innovate quickly enough to keep up with the flood of nimble startups focused on the same exact thing.
Sure, maybe it can buy its way into these markets, but HP’s history of integrating those technologies (WebOS anyone?) hasn’t exactly been stellar. What’s more, revenue for Autonomy, which HP spent $10.3 billion to buy last year, declined compared with when it was a standalone company. Whoops.
In any event, if I were a technology solution provider, I would be seriously evaluating just how much exposure I have to both HP and Dell.
There are major changes afoot in mobile form factor and software spending habits that don’t favor either of these companies right now. Sure, they may be great legacy businesses for technology solution providers for years to come, but is your company cultivating new relationships that will help your own company stay abreast of technology consumption habits?