HP software group year off profit, says Fiorina

Business may be picking up for Hewlett-Packard's hardware divisions, but the company's software group is still more than a year...

Business may be picking up for Hewlett-Packard's hardware divisions, but the company's software group is still more than a year from profitability, said HP executives.

"The return to profitability in that business is later than I had originally said, and we had originally thought a year ago," said Carly Fiorina, HP's chairman and chief executive officer.

In its most recent quarter, software was one of the fastest growing divisions within HP, with revenue rising 23% year on year, but the business unit as a whole was unprofitable.

HP predicted that trend is expected to continue for at least another year.

"Our plan is to approach break-even by the end of 2005," said Ann Livermore, the executive vice-president of HP's Technology Solutions Group.

One of the reasons behind the division's lack of profitability is that HP has spent $100m in research and development over the past year, along with millions more in the acquisition of six software companies, including TruLogica, Consera Software and Novadigm.

That trend is expected to continue over the next year as HP works to promote its vision of a flexible computing architecture called the Adaptive Enterprise.

"We want to bring that business back to profitability, but that will probably not happen until 2005, because we are making very targeted investments in software," Fiorina said.

With HP a year into its roll-out of the Adaptive Enterprise strategy, it is clear that HP must do a better job of integrating the software it sells, said Gordon Haff, an analyst with research company Illuminata.

"It's a little ironic, given the [Adaptive Enterprise] vision of simplicity and integration, how complicated and unintegrated some of the components are," he said.

Fiorina said she expected IT budgets to grow by only 2% in 2004, but she predicted HP would see revenue climb by $7bn for the company's 2004 financial year, driven by growth in its printing, imaging and other hardware businesses, for a total of about $80bn.

Robert McMillan writes for IDG News Service

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