New HP CEO Signals Software Offensive In Wake Of Strong Q4 Results

Even as Hewlett-Packard posted better than expected fourth quarter results and raised its outlook for 2011, new HP CEO Leo Apotheker Monday left little doubt that he is laser-focused on increasing the company's software sales.

Noting that the software business only accounted for about 3 percent of HP's $126 billion in sales for the fiscal year ended Oct. 31, Apotheker said the HP management team is united in the view that the company needs a "viable" and "vibrant" software business. "Doubling it wouldn't be too bad," said Apotheker in a conference call with reporters. "Tripling it would be even better!

"We need more software both as a category and also across the portfolio so that we can differentiate our individual products and services," said Apotheker. "We have an opportunity to better integrate our software and services strength across the company and we will be focusing on that."

Apotheker's remarks came after HP posted non-GAAP diluted earnings per share of $1.33 for the fourth fiscal quarter ended Oct. 31 on an eight percent increase in sales to $33.3 billion. The Wall Street consensus was earnings of $1.27 per share on sales of $32.75 billion, according to a survey of analysts by Thomson Reuters First Call.

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HP shares were up 3 percent or $1.46 in after hours trading to $44.67. HP shares closed Monday up 2 percent or 76 cents per share to $43.25.

HP's networking battle against market leader Cisco in the wake of its acquisition last year of 3Com paid off in big sales gains for the computer giant. HP said networking revenue increased a whopping 227 percent overall in the fourth quarter. The company's ProCurve network equipment sales were up 50 percent over the year ago quarter.

HP's Enterprise Storage and Servers (ESS) business reported a strong overall quarter with sales up 25 percent to $5.3 billion. Blade sever revenue was up 51 percent,, while industry standard server revenue increased 32 percent. Even storage sales, which have sometimes lagged, were up 14 percent.

Even with the strong hardware numbers, it was HP's software business, which accounted for only $3.58 billion in sales in the last fiscal year, that Apotheker focused in on several times during the call. "We need to enhance our software IP (intellectual property) across the company to create more differentiation with our products," he said, singling out an HP medical software solution that comprises the Medicaid platform for 22 states.

"We have many options available to us (to grow software sales)," added Apotheker, who spent 20 years at ERP software giant SAP, in response to a question on whether the company would consider a big bang acquisition in the software market. "We can do some of it organically. We can do some of it non organically.

Next: Ready To Dig Into HP's Technology Portfolio

Apotheker, who took the helm on Nov. 1, said he is "excited" to spend more time digging into HP's technology. "We are in a unique position to drive a better, more consistent, and unified user experiences across our portfolio like our converged infrastructure," he said. "And we can leverage even more technologies to create an integrated value added solution in addition to our point products. Just as our customers knock down their technology silohs, we have the opportunity to knock down a few of our own."

Apotheker did not talk about his indirect channel sales philosophy, but he did signal that he will continue to expand HP's direct sales force. That was one of the major initiatives of former HP CEO Mark Hurd, who added thousands of new direct sales reps to the HP's workforce.

Apotheker said he will continue to beef up HP's direct sales force. "We feel that adding all these people we can provide our customers way better service so we'll continue doing that," he said.

What's more, Apotheker said he aims to make sure that the direct sales force is "well trained, and totally focused on providing solutions to our customers. Trust me, we'll be focusing on that even more in the future."

Apotheker also gave some good news to HP employees announcing that he is reinstating salary increases for the new fiscal year. "I believe in a performance- driven culture and our employees have been performing," he said. "It is well deserved."

Apotheker said the strong fourth quarter and full fiscal year results show that HP is "winning in the market" with an "impressive ability to execute."

"This is evidence of our strong operating leverage, our leadership position, our ability to grow in higher margin categories and our strong balance sheet," he said. "We are carrying this momentum into FY (Fiscal Year) 2011."

HP, in fact, raised its full year fiscal 2011 revenue in the range of $132 billion to $133.5 billion with non-GAAP diluted earnings per share in the range of $5.16 to $5.26.

In the press call, Apotheker did reference the Oracle controversy that has dogged him since being named CEO. "A competitor has tried to distract us and you," he said, noting that HP has remained "intensely focused" on growing sales.

Oracle CEO Larry Ellison, in fact, had threatened to serve a subpoena to Apotheker if he showed up at HP's Palo Alto, Calif. headquarters during his first several weeks on the job. Oracle was attempting to subpoena Apotheker in a software theft case with rival SAP that covered at least some of the period that Apotheker was CEO of SAP. There were even reports that Oracle had hired private investigators to find Apotheker.

When asked where he was during the quarterly conference call, Apotheker said he was indeed at HP's headquarters with the HP management team. "What really matters to our investors and employees is HP's business performance," he said.