Does HP’s quarterly loss show the strength and variety of the datacenter market?

The current state of the datacenter business requires flexibility and an open mind as the transition from traditional to cutting edge impacts vendors

Taken as a whole, Hewlett-Packard’s announcement of an $8.9 billion quarterly loss is generating a lot of buzz. When you break it down, the vast majority of the loss is the end result of the 2008 acquisition of EDS for $14 billion (a $9.2 billion write down), softness in PC sales, and $1.8 billion in restructuring charges, among other, less expensive, issues.

But let’s look at the datacenter component of HP, directly from their third quarter report:

Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 10.9% operating margin. Networking revenue was up 6%, Industry Standard Servers revenue was down 3%, Business Critical Systems revenue was down 16%, and Storage revenue was down 5% year over year.

Now first, keep in mind that this doesn’t mean that the datacenter business isn’t making money for HP, it just means that compared to last year, business has fallen off somewhat in everything except networking, where HP is just getting around to fully integrating the business it bought from 3Com.

It would be easy to say that HPs datacenter sales issues are reflective of the entire industry, but the truth is that the industry continues to expand. And competition in all the key areas of datacenter spending has gotten significantly more intense, not just for the sales of things like traditional datacenter IT hardware, but because of a lot of very innovative design and product that is hitting the datacenter market.

Part of these changes can be assigned to the intersection of the traditional IT and facilities roles. The drive towards building greener datacenter facilities has required that IT adopt a more facilities oriented approach to their thinking (sustainability, operations, power and cooling costs and efficiencies) and that facilities people look more at the IT point of view (service delivery and building competitive advantages with technology).

This has changed the way that IT budgets get spent on datacenters. Cutting edge solutions to problems are getting much more traction; Fortune 1000 sized companies are more willing to deal with smaller vendors with innovative approaches to the combined set of facilities and IT issues facing existing and new datacenters.  The datacenter market is demanding much more flexibility than it ever has from its vendors, and companies the size of HP, dealing with their own transitional issues, are caught at the crux.