When Hewlett-Packard announced Q4 2011 financial results on Nov. 21, The VAR Guy was pleasantly surprised and somewhat disappointed. Simply put, HP’s PC business held up remarkably well and networking sales continued to grow. But HP’s server and printer businesses are under serious pressure. Here’s a closer look at HP’s Q4 2011 results. Plus, an HP reality check — as only The VAR Guy can deliver it.

First, the facts: HP’s Q4 2011 revenues were $32.1 billion, down 3 percent from Q4 2010. Also of concern, Q4 2011 net income was $200 million, down 91 percent from $2.5 billion in Q4 2010. Throughout an earnings call, newly installed CEO Meg Whitman described opportunities and challenges awaiting HP, which is striving to restore investor, customer and partner confidence after a turbulent ride under former CEO Leo Apotheker.

Now, The VAR Guy’s analysis…

1. HP’s PC Business

HP Said: The Personal Systems Group delivered revenue of $10.1 billion in the quarter, down 2% from the prior year. The segment delivered 2% operating profit growth year-over-year with a 5.7% operating margin. Consumer client revenue was down 9% versus the year-ago quarter with notebooks seeing a bigger decline than desktops. Total units shipped were up 2% year-over-year, but with average selling price declines, we saw no growth in desktop revenue year-over-year and a 4% decline in notebook revenue. Both form factors continue to be affected by weakness in consumer demand.

The VAR Guy Said: The PC market is fiercely competitive with razor-thin margins. But the figures above look reasonably darn good, considering HP caused customer and partner confusion when it debated the potential spin-off or sale of its PC business. HP recently ended that debate and said it would hang onto the PC business. Also, why are notebook sales down more than desktop sales in the consumer market? Potential answer: Apple iPads.

2. HP Imaging and Printing

HP Said: Net revenue was $6.3 billion, down 10% year-over-year due to channel inventory reductions, broad-based weakness in EMEA and softening consumer demand, particularly for supplies. Commercial printer revenue was up 4% year-over-year with commercial hardware units up 5%. Consumer printer revenue was down 8% year-over-year with an 8% decline in units. In total, printer unit shipments were down 5% year-over-year. Supplies revenue declined 14% year-over-year to $4 billion in the quarter. HP said it entered Q4 with higher channel inventory than it would have liked, and HP worked to reduce this throughout the quarter. Still, HP ended the quarter with higher channel inventory than it would have liked in some regions.

The VAR Guy said: Ouch, ouch, ouch. Sliding sales in some areas and bloated channel inventories? Is there a bigger problem here than HP is disclosing? Was HP stuffing its printer channel in early 2011? Regardless, HP’s printer business is no longer printing cash…

3. HP Services

HP Said: Q4 revenue was $9.3 billion, up 2% from the prior year quarter but down 1% in constant currency. HP said its  services turnaround will take time as the company works to shift the business mix towards higher-growth, higher-margin services.

The VAR Guy said: Here again, it sounds like HP is failing to execute. HP spent $13.9 billion in 2008 to acquire EDS for a higher-margin services push. Three years later, that growth apparently has not materialized…

4. HP Enterprise Servers, Storage and Networking

On Servers, HP Said: Revenue declined 4% year-over-year to $5.7 billion. Across ESSN, HP said it is seeing the effects of a slower economic environment. Operating profit of $733 million was down 17% year-over-year. HP reiterated a macro economic slowdown that’s impacting Industry Standard Server sales. Revenue in ISS declined 4% year-over-year. Revenue in Business Critical Systems declined 23% year-over-year primarily due to a decline in Itanium-based server sales. HP’s ability to close deals has been impacted by Oracle’s Itanium decision, though HP is working diligently to enforce the commitments that Oracle has made to HP customers.

On Servers, The VAR Guy Said: Perhaps some of HP’s server pain involves customers shifting their on-premise server purchases to cloud services providers (CSPs). HP better make sure those CSPs are standardizing on HP servers… Also, Oracle’s decision to abandon HP Itanium continues to be a staggering blow to HP’s high-end server business. But HP should have seen the Oracle move coming; Itanium has never lived up to its original hype from a decade ago…

On Storage, HP Said: Revenue grew 4% year-over-year with 11% growth in our external disk products and, once again, triple-digit growth in 3PAR. Year-over-year declines in tape and EVA product lines partially offset this growth.

On Storage, The VAR Guy Said: Attention all HP channel partners, shift your storage focus to 3Par.

On Networking, HP Said: Revenue grew 5% year-over-year, and enterprise switching and routing grew 7% from the prior year period. HP said it feels good about its business model and customer value proposition. HP expects to continue to gain market share in switching and routing.

On Networking, The VAR Guy Said: Hmmm… HP expects to keep gaining switching and routing market share? And Cisco insists that “good enough” networking gear from HP isn’t good enough for customers? Something’s gotta give here…

5. HP Software

HP Said: Revenue was $976 million, up 28% compared with the prior year, including 33% license growth, 36% services revenue growth and 20% support revenue growth. HP said demand for its security and IT Performance Suite is strong. Plus, HP said the integration of Autonomy, acquired a few weeks ago, is going well.

The VAR Guy Said: HP has spent more than a decade trying to gain respect in the software market. Is 2012 the year HP’s software strategy finally clicks?

The Bottom Line

HP has just wrapped up its most turbulent fiscal year in its history. HP faced the perfect storm in fiscal 2011…

Surely, HP won’t face a repeat of that perfect storm in 2012… right?