HP boosted by strong growth in services

After 18 months of minimal growth, HP's service division is seeing its fortunes improve as it aids 'the CIO's balancing act'

Strong revenue growth boosted HP's performance in the crucial services sector in 2006, especially in the second half of the year.

The figures reported on Wednesday showed operating profits at HP's services division rise by 12.4 percent in the last quarter of 2006 to $505m (£258m), boosting the division's overall growth for the quarter. The division recorded profits of less than $400m in the previous year.

At the same time, service revenue rose five percent in the full year, to $4.1bn. Along with profits, revenue had also lain dormant for the previous year.

George Davies, HP's European vice president for consulting and integration, said "We have done a lot in the last year or 18 months, and put in a lot of hard work, and we are now beginning to enjoy the benefits of that."

HP's services business is composed of three divisions: managed services, consultancy and technology services. Together the three divisions account for close to half (46 percent) of the revenue for HP's Technology Solutions Group, which itself is around half of HP.

Of the three divisions, two, managed services and consultancy, provided all the revenue growth. Managed services grew 16 percent year on year and consultancy grew by seven percent.

At the same time as it released the figures on the performance of the service division, HP also released partial results from a survey it had conducted of 700 key clients in Europe.

The survey found that IT managers and chief information officers are taking a conservative and defensive approach as they struggle to serve their users and protect their systems. Around half of managers surveyed said they estimated that 50 percent of their IT budget was spent on maintenance.

The two leading priorities for senior IT staff are securing their IT systems and meeting the demands of their users, the survey found. Many have little incentive to invest in new solutions, with 52 percent saying that money saved by IT through greater efficiencies is re-allocated elsewhere in the business.

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