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How HP’s Software Division Performed in 3Q15

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Software reported 6% fall

Previously in this series, we observed that, among all the operating segments of The Hewlett-Packard Company (HPQ), only the company’s Enterprise Group posted positive growth in 3Q15. Now let’s look at Hewlett-Packard’s (commonly known as HP) Software segment, whose revenues fell by 6% on a YoY (year-over-year) basis to $900 million. On a constant currency basis, this fall was a mere 1%.

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Shift toward SaaS and subscription-based offerings

Within HP’s Software segment, all the revenues of its sub-segments—license, support, professional services, and SaaS (software-as-a-service)—posted declines, falling by 11%, 3%, 8%, and 4%, respectively. But these declines were mostly due to the shift in company’s portfolio and operating model toward subscription-based and SaaS offerings.

Cisco Systems’ (CSCO) Global Cloud Index stated that SaaS is expected to be the fastest-growing cloud service through 2018. However, HP stated that in 3Q15, its own cloud, security, and big data services witnessed double-digit revenue growth.

Salesforce.com (CRM) leads the CRM (customer relationship management) market, which is the largest component of SaaS, a fastest-growing sector in the cloud computing space. It is followed by SAP (SAP) and Oracle Corporation (ORCL).

This segment is of prime importance in determining the profitability of HP, as it contributes a maximum to the company’s operating margin. As the table above shows, HP’s software segment had an operating margin of approximately 21% in 3Q15.

If you’re optimistic about HP, you might consider investing in the Technology Select Sector SPDR (XLK), which invests about 1.25% of its holdings in the company.

In the next part of this series, we’ll look at HP’s recent layoff announcement as the company prepares to split.

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