Hardware: Consumers fuel a strong surge

Fueled by growth in consumer and international sales, the computer hardware sector saw a strong surge overall in 2007, though companies that sell primarily to business clients had a slightly harder time.

The computers and peripherals sector – led by valley giant Hewlett-Packard – ranked first in this year’s Silicon Valley 150 ranking for sales, net income, market value and sales per employee. The sector’s overall revenue grew a respectable 15 percent, with net income up 41.5 percent.

Palo Alto-based HP was the big engine, along with Cupertino’s Apple. Sales of their consumer products – from PCs and notebook computers to the new iPhone – helped overcome the weaker performance of big server and supercomputer makers like Sun Microsystems and Silicon Graphics.

“The consumer is the larger segment of overall tech spending, and HP has a larger exposure there,” said analyst Brent Bracelin of Pacific Crest Securities.

HP has gained market share for PCs, in part because of foreign sales, he said. HP also has done well with notebook computers, which are now selling better than desktop models and often bring higher profits.

The company had a 14 percent increase in sales and 20 percent increase in net profits. With 172,000 employees, up 16,000 from last year, HP’s payroll accounts for three out of four workers employed by this sector of the SV150.

Apple, though much smaller in sales and workforce, saw revenue increase by 28 percent and profit rise by a whopping 68 percent. Riding high on its successful foray into mobile phones, Apple ranked fourth in the SV150 overall and led its sector in market value, which rose a remarkable 57 percent to $126 billion.

By contrast, Santa Clara-based Sun ranked seventh in the SV150, but saw only 1 percent growth in sales and a 43 percent drop in market value. Still, the company showed $745 million in profits – after losses in the five previous years.

Sun’s primary market is corporate clients, and many of its products are tied to older “legacy” systems, Bracelin said. But the company is shifting to newer technology and embracing the open-source concept with its recent acquisition of database software maker MySQL.

Companies that are in transformation mode “tend to have higher execution risks and more lumpy results,” Bracelin said, “so we expect that to continue” for Sun.