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"Wall Street didn't make much of HP's services numbers \u2013 but they're actually pretty good. Photo: HP.\nJust for a moment, forget about revenue and earnings per share. The most interesting number out of Hewlett-Packard\u2019s earnings announcement this week was this:\n15.8%.\nThat\u2019s the profit margin CEO Mark Hurd and his team squeezed out of HP\u2019s \n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\tHPQ\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t services business on the way to an impressive first fiscal quarter. The significance of the number? When Hurd bought lumbering services giant EDS for $13.9 billion a year and a half ago, he embarked on the corporate equivalent of that weight-loss show, &amp;#8220;The Biggest Loser.&amp;#8221; For HP to win, the former EDS has to drop weight. And the surest sign of weight loss is healthy margins.\nThat 15.8% means those margins are up 3 points from a year before. Not bad. Of course, not all the news is rosy; services revenues were actually down 1% year-over-year, and margins dipped a bit from the previous quarter. Numbers like that don\u2019t typically stand out in a quarter where HP\u2019s overall sales were $31.2 billion, up 8%, and cash flow from operations was $2.4 billion. And HP has a long way to go before its services business gets to the same league as, say, IBM \n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\tIBM\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t. But still, I\u2019ll argue that the most important takeaway from the period is this: even when it has a rocky quarter, HP is disciplined enough to keep its services biz on a healthy weight-loss regimen.\nIf you&amp;#8217;re one of those folks thinking, who cares about services? Dig into HP\u2019s overall numbers a bit, and it becomes clear why that\u2019s so important. PCs and printers get a lot of attention because they are HP\u2019s legacy businesses \u2013 together they delivered half of the company\u2019s revenue. But these days, services \u2013 things like data center management and\u00A0software development outsourcing \u2013 are already shaping up to be the biggest single contributor to HP\u2019s financial results.\nTake a look: Though the PC group generated more revenue last quarter ($10.6 billion versus $8.7 billion for services), the services business generated three times more operating profit. In fact, services operating profit ($1.4 billion) even outpaced that of HP\u2019s notoriously profitable printing group ($1.1 billion).\nHere\u2019s where those margins come in. Even though the services group brought in 1% less revenue last quarter than a year before, its operating profit was up about $300 million \u2013 that\u2019s 27%.\nIf Hurd can get services revenues humming again after a weak quarter \u2013 and on the analyst call he said services and software are showing signs of renewed vigor \u2013 the profit payoff should be very nice indeed. We\u2019ll see how he does at next quarter\u2019s weigh-in."^^<http://www.w3.org/2001/XMLSchema#string>
<http://fortune.com/2010/02/18/hps-mark-hurd-the-biggest-winner/>