HP has reported solid revenue growth for its fiscal third quarter, but says performance in its Enterprise Servers and Storage Group was "unacceptable." As a result, the company says it will make immediate management changes.

Revenue in the quarter rose to $18.89 billion, up 9 per cent from $17.35 billion in the year-earlier quarter, according to preliminary figures. Net income was $586 million for the quarter, compared to $297 million a year ago. Pro-forma earnings per share, excluding exceptional items, rose to $0.24 from $0.23 in the year-earlier quarter.

However, this didn't meet analyst expectations. Analysts surveyed by Thomson First Call expected earnings of $0.31 a share on revenue of $19.02 billion.

HP Chairman and Chief Executive Officer Carly Fiorina said: "Earnings per share fell well below estimates, brought down by problems in the company's Enterprise Servers and Storage Group. Three issues plagued the server and storage group during the quarter: migration to a new order and supply chain management system in the US proved more disruptive than expected; aggressive discounting and the switch to a centralized claims system led to channel management problems in Europe; and revenue from storage systems was significantly less than expected."

"Execution issues cost us, and we are therefore making immediate management changes," she told analysts in a conference call.

She estimated that the issues affecting the servers and storage group cost the company $400 million in revenue and $275 million in operating profit.

Positive notes

HP's Personal Systems Group made a strong showing, with revenue of $5.9 billion, up 19 per cent year over year, driven by increased desktop sales.

"In general, notebook margins are higher than desktop margins, but they are moving closer together over time. We are getting better at surrounding a desktop with other options that drive an increase in average selling price," Fiorina said.

Software revenue for the quarter increased 17 per cent year on year to a record $223 million. However, the division made an operating loss of $45 million as a result of investment in the company's Adaptive Enterprise strategy.

Revenue from services revenue grew 12 per cent year on year, to $3.5 billion. Within that, managed services revenue grew 42 per cent, and consulting and integration revenue 6 per cent.

For the fourth quarter, HP predicts its revenue will be between $21.0 billion and $21.5 billion, with pro-forma earnings per share in the range $0.35 to $0.39.