HP's Australian revenue closes in on IBM

New Zealand results show HP is already well ahead

IBM is in danger of losing its crown as Australia's largest information technology company after long-time rival Hewlett-Packard's annual revenue crossed the A$3 billion (NZ$3.4 billion) threshold for the first time.

The growth spurt puts HP within striking distance of the number one spot on the country's technology league table and leaves the pair as the only Australian information technology businesses that turn over more than A$3 billion a year.

According to Companies Office records, HP is already well ahead of IBM in New Zealand, reporting $602 million in revenue for the year ended October 2007, up from $546 million in 2006. IBM New Zealand reported $357 million in revenue for the year ended December 2006, it's latest financial statements on file.

Several lean years at IBM Australia have allowed HP to close the gap on the industry's 800 pound gorilla but Big Blue still retains a slender lead over its competitor and has claimed several times over the past 12 months to have turned its business around.

Statutory financial accounts filed with the Australian Securities and Investments Commission showed that in the 12 months to October 31 last year Hewlett-Packard Australia's revenue improved 8.2% to A$3.22 billion.

The company, which manufactures and sells personal computers, servers, printers, business software and technology services, among other products, recorded a jump in net income from A$53.3 million a year ago to A$80.6 million.

The result stood in stark contrast to IBM Australia's most recent financial report, which included a dip in revenue to A$3.4 billion during the 12 months to December 31, 2006, and an accompanying 58% drop in net profit to A$54.8 million.

In New Zealand IBM's reported profit also fell substantially from $33.4 million after tax in 2005 to $20.1 million in 2006.

The results are not directly comparable and IBM Australia is not due to release its most recent local financial accounts until next month at the earliest, but the company is adamant its Australian business has improved.

IBM Australia, like fellow technology services giant Electronic Data Systems, has suffered from the move away from large-scale outsourcing contracts towards more selective deals where only small parts of a business's technology operations are outsourced at a time.

Hewlett-Packard was less exposed to the shift as much of its technology services revenue is drawn from what are known as break-fix services.

As the name suggests, break-fix services revolve around repairing broken computer equipment, such as PCs, as opposed to the outsourcing of mainframes or other IT functions.

HP, with its greater focus on consumer products ranging from home computers to printers and scanners, has also been better placed to capitalise on booming household spending on electronics, particularly in areas such as digital photography.

In contrast, IBM no longer sells PCs after the company offloaded its worldwide desktop and laptop computer business to Chinese manufacturer Lenovo for US$1.25 billion in early 2005.

Lenovo paid just A$30 million for the Australian and New Zealand arm of the computer hardware unit, which reported sales worth $421.7 million in the 12 months to March 31 last year.

Lenovo's New Zealand branch results were reported separately in those accounts. The company recorded local sales of A$60.4 million to 31 March 2007, up from A$50.5 million in 2006.

Hewlett-Packard's Australian profit was aided by a fall in labour costs during the period. Employee expenses declined from A$558.6 million a year ago to A$553.8 million, bucking a recent trend towards higher staff costs at Australian technology firms in recent years.

A large discrepancy between 2006 and 2007 staff numbers could explain the decline in employment costs, with ASIC accounts showing that headcount dropped from 3063 to 2464 over the year. It is unclear if the figure included changes in the number of contract workers HP Australia uses or if any full-time jobs were lost during the period.

HP Australia and New Zealand executives were not available for comment.

— Australian Financial Review. Additional reporting by Rob O'Neill

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