Hewlett-Packard Turns Cloud Threat Into Profit on Servers

Hewlett-Packard Co. has found a way to turn one of the greatest threats to its business into a source of revenue.

The company has booked more than $1 billion in sales of a range of low-cost servers made in partnership with Foxconn Technology Group since starting a joint venture with the Taipei-based company in May 2014, Antonio Neri, head of Hewlett-Packard’s enterprise group, said Wednesday in an interview with Bloomberg News.

That’s small relative to the size of Hewlett-Packard’s main server business, which includes sales from the joint venture, and brought in $12.5 billion in fiscal year 2014. But it means Hewlett-Packard has figured out how to sell this equipment to some of the world’s largest computer operators like Google Inc., which typically turn to Asian companies such as Quanta Computer Inc.

These lower-cost servers, manufactured by companies known in the industry as original device manufacturers, or ODMs, made up 8.2 percent of server sales worldwide in the fourth quarter, a 31 percent increase from a year earlier, according to a March report by IDC.

Though the Foxconn joint venture is a lower-margin business, it’s profitable and fast-growing, Hewlett-Packard’s Chief Executive Officer Meg Whitman said in an interview.

“Not all service providers buy from ODMs,” she said. “Google does. Some others do. Microsoft, they buy from ODMs as well as us.”

Since starting the joint venture, Palo Alto, California-based Hewlett-Packard and Foxconn have sold to a number of customers around the world, including in China, Neri said. One of the deals was the sale of more than $200 million worth of servers, Neri said.

“It’s been a great success,” Neri said. “We have won many, many large deals around the globe.”

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