H-P Provides IT for Dept of Defense

Hewlett-Packard Company ( HPQ - Analyst Report ) recently clinched an information technology (IT) services deal with Defense Information Systems Agency (DISA) for a period of 7 years. The agency is a unit of the U.S. Department of Defense (DoD) and is responsible for providing the required IT and communications support to various federal offices such as President, Vice President and Secretary of Defense.

The deal was awarded under the agency’s Encore II contract and carries a value of $39.8 million. Per the contract terms, H-P will act as the prime contractor in the development of a program for DISA to help it detect and restrict any system error while ensuring secured exchange of data among the various governmental agencies.

Moreover, H-P will implement its Assured Compliance Assessment Solution across the DoD’s IT ecosystem to facilitate deployment of various software applications after passing the agency’s formatted compliance levels.

In March, technology solutions provider Sabre Holdings opted for H-P’s enterprise services for 6 years to ensure a scalable and efficient technology infrastructure. Also, the U.S. Department of Veterans Affairs extended a service deal with H-P retaining the company as the prime contractor for its Compensation and Pension Record Interchange support program. The tech giant also clinched a 5-year service deal with the Royal Automobile Club of Cataluña for an undisclosed sum.

Despite consistent wins, H-P delivered marginal 1.0% year-over-year growth in its Services revenue in the first quarter of 2012. Within the segment, Technology Services revenue increased 2%, Application and Business Services revenue was flat and IT Outsourcing revenue recorded growth of 2% year over year.

As a matter of fact, H-P’s services have not seen much growth in the past few quarters. This could be because of the fact that a large number of deals come from the government vertical. Since government contracts usually go to the most competitive bidder, they generally take time to get approved and also don’t come at attractive prices. Another problem with Fed deals are the constrained budgets due to uncertain macro environments.

We are concerned about last quarter’s results, which were lackluster compared with the year-ago period. But we are looking forward to the implementation of Meg Whitman’s strategies and are encouraged about H-P’s shift in focus to the higher-margin cloud computing arena. This will be beneficial to H-P since it is not making desired profits from its legacy PC business. Nevertheless, the tech giant continues to lead Dell Inc. ( DELL - Analyst Report ) and Apple Inc. ( AAPL - Analyst Report ) in the PC market.

Currently, H-P has a Zacks #3, implying a short-term Hold recommendation.