HP looks to services for rev growth in Asia

By Jennifer Tan

SINGAPORE: Hewlett-Packard Co, reeling from a huge $2 billion quarterly net loss after its merger with Compaq Computer, said it expects revenue from its Asian IT services operation to be flat in 2002, but to double by 2006. "This is not a big growth year for us or the market," Ann Livermore, executive vice president of the world's top computer and printer firm, told Reuters in an interview on Wednesday.

"But our goal is to double our Asia Pacific revenues in the next three to four years, driven by managed services, where companies outsource part of their IT resources to us to cut costs," she said. HP Services, with average quarterly revenue of about US$3 billion, manages information technology resources for other companies and operates as a consulting arm for HP.

This division, along with the imaging and printing unit, are the only two profitable businesses of the U.S.-based company, as its computers segment continues to bleed red ink. HP Services, which ranks third in the global IT services market behind International Business Machines and Electronic Data Systems, posted combined revenues of $1.4 billion for Asia Pacific in the year to October 31, 2001.

It reported worldwide revenues of $13 billion in FY2001. HP closed its $18.7 billion merger with Compaq Computer Corp in May. According to Gartner Dataquest, outsourced IT services totalled $100 billion in 2001, accounting for about 20 percent of the global IT services market, and is expected to grow at a compounded annual rate of 8.4 percent through 2005.

"HP's strategies on the whole are in tune with the market -- I would expect them to find a position in the market that they can defend and grow," added Gartner analyst Rolf Jester. HP's managed services, which is riding on the outsourcing trend, remains the bright spot in an environment where cost-cutting is key, Livermore said.

Managed services revenue rose two percent in the fiscal third quarter from the previous quarter and seven percent year on year. HP aims to grow its managed services revenues at an annual rate of six to eight percent -- twice the current market rate -- over the next four years, she added.

"We expect managed services to account for about 30 to 50 percent of the services business in the next three to four years, up from the current 15 percent." HP shares ended 6.6 percent lower at $12.55 on Tuesday. The stock has slumped nearly 40 percent since the start of 2002, in line with the re-rating of the tech sector as demand collapsed.

© Reuters