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HP: At The Crossroads of Convergence

There are people whose identity crisis last forever. And there are people who starts in the right direction to resolve it but tumble in between miserably. But hey, they are people! One can’t expect the same for businesses though. Still being one of the largest IT empires on the globe, HP has witnessed nothing less than a lackluster last decade. Several questionable moves and as a result: 3 CEOs later, the glory days are again on the horizon for HP, as former eBay head honcho Meg Whitman has started her tenure in a storming fashion with much needed ‘damage control’ measures!

It all started when the manufacturer of cutting edge, innovative products: from calculators to oscilloscopes to printers; decided to take a break with all R&D and focus on being a frontrunner in the assembled PC business.

Under Carly Fiorina, the highly debated HP-Compaq merger took place in ‘02 and all hell started to break loose from that ominous moment. Sure the margins were higher than ever, but at the end of the day, it was an assembled product, which meant profit sharing has to be higher than manufacturing a product. The board forced Fiorina to resign, giving the strings to Mark Hurd. Eventually they did become no.1, and with aggressive cost cutting spree and hence massive cashflows under their belt, the computer was personal again! Amongst everyone’s utter amazement and disbelief, the new CEO splurged around $14 billions to acquire EDS, eyeballing the ever expanding enterprise infrastructure services and BPO arena. (which was later renamed as HP Enterprise Services) A stark departure from its consumer centric business, this was a doozie considering increased dominance of offshore outsourcing of service industry. Yeah, no one cared for the list of pending patents its R&D dept. had churned out!

In addition, HP acquired the ‘Apple’ of 90s: Palm Inc., which was reeling towards extinction because of their outrageously ancient tech. But, in order to compete with Apple and building a similar sustainable app-driven ecosystem, HP went all out and bought it for a throwaway price. Again winds changed and Hurd was forced to resign following his “inappropriate conduct” to a female personality. It was time for former SAP chief Leo Apotheker to shell-shock everyone during his what would be an extremely catastrophic 10 month tenure. First up he bought British enterprise data mining service provider Autonomy for a hefty $10bn, sinking the cash reserves to a mere $3bn and market cap by 15%! Yeah, repeating the same mistake from Mark Hurd, idiotically envisioning services to be more profitable in the long run. Also, suddenly they had an epiphany or so, that they can’t handle PC business anymore, so declared to spin it off gradually! It’s the same company that brought Compaq on board a few years back! And how can we forget webOS, the brainchild of Palm.

 

Well, not even a year after HP jumped into the tablet bandwagon(8 months to be precise), Apotheker calls it a day for webOS and kills it unceremoniously, leaving a big question mark on webOS powered Touchpad, which also suffered a morbid fate after 6 weeks of sale. Ofcourse PC business has become really cut-throat in last 2-3 years, cloud is the future and enterprise solutions are hot at the moment, but that doesn’t translate into cannibalize what’s one’s core competency has been over the years. No wonder HP stocks saw a sudden meltdown (from $50 to $25 in a year), amidst a vehement investor outcry. Another CEO ousting was due this time, never leaving the board to catch a breath! What’s worth pondering is that, after nearly dragging HP to the freakishly dreadful future, Apotheker was “awarded” around $25mn in severance..! So much for a failed attempt to make HP a transvestite circus, using his rigid, oh-so-90s ideology. Perhaps his intentions were in right direction, but the actions were clearly irresponsible.

Autonomy had a glossy last decade thanks to a flurry of acquisitions, which translated into extraordinary CAGR, as high as 55%. Leo rapidly pointed this out to justify the deal, completely disregarding the fact that the major slice of pie came from the inorganic growth. It doesn’t even come close with its revenue measuring less than 1% ($1bn) compared to HP’s overall revenue. Looking at the technology prospects, enterprise search solutions alone don’t cut it much these days. Industries demand more than just search, revolutionized by Hadoop clusters, which are super-powerful to handle mission-critical enterprise scale dataloads. This major paradigm shift has forced most businesses to embrace cloud based big data/business intelligence solutions, for which perhaps HP’s acquisition of Vertica, the real-time analytics provider, should prove be quite crucial. This was an interesting move bringing Autonomy and Vertica together following the addition of a brand new division: information management. Autonomy recently debuted v10 of IDOL: Intelligent Data Operating Layer, which is designed to plug into Vertica; creating a much needed synergy, gathering unstructured/semistructured data and processing them in realtime.

HP is now competing head on with big daddys of big data analytics: Oracle’s Exadata and EMC’s Greenplum with this hybrid solution, powered by their very own flagship Blade servers. On the cloud front, HP is going all out to dominate the public, private and hybrid clouds. Joining forces with Microsoft, it will offer Microsoft 365, Lync, Exchange and Sharepoint on HP’s global network of data centers. VMware has also been a great ally when it comes to providing cutting edge virtualization solutions. Currently a market leader, this collaboration is looking forward to an exciting new year with the inclusion of VMware’s vSphere 5 offered with HP’s highly scalable ProLiant servers. In the cloud computing arena, HP’s private betas of cloud storage service ‘HP Cloud Object Storage’ (equivalent to Amazon S3) and cloud instances-on-demand ’HP Cloud Compute’ (equivalent to Amazon EC2) are making waves already. It also integrates OpenStack, an open-source cloud platform, headed by Rackspace, joined by HP in July’11. Highlighted in its Discover ‘11 event in Vienna, HP’s ‘Converged Infrastructure’ strategy gives additional push to Microsoft Dynamics CRM and SAP environments, all backed up with its robust hardware lineup including the state-of-the-art datacenters, dubbed as EcoPODs.

The Road Ahead:

Meg Whitman was appointed this October to fill the void. After taming a completely different beast as eBay, she had big shoes to fill for bringing this lost empire on track. Well, she took her time to settle, analyzed the options and finally came up with a rescue plan, saving the Personal Systems Group (PSG) from being outcasted. Moreover, the webOS project was declared open-source, encouraging the global developer family to take the challenge of making it competitive enough to survive in the iOS-android era. At least, it’s good to see the company is going back to its roots after all.! Though following HP’s rollercoaster ride this year, recently leading credit agency S&P downgraded its rating a notch. But going by all the consolidation steps Meg is proposing according to Q4 2011 earnings call, prospects are really promising.

2012 seems to be the year where HP would be reinforcing itself to stabilize its current product portfolio. PSG and printers/networking segments are generating stable income as of now, but the personal devices area is heavily overshadowed by Apple, which HP shouldn’t mind if they want to focus on enterprise solutions. Touchpad went to a firesale a couple of weeks back, sold for only $99. HP can’t afford to reprise debacles like Blackberry, at least not with lousy decisions. HP recently announced partnership with cloud storage solution: Box, which would enable its existing PC lineup to get an upper hand. With this addition, concentrating more on building an ecosystem around webOS with a solid device would really bring back the old HP back into the game. Unanimous critical acclaim for webOS wasn’t a fluke and HP should try to delineate this in form of offering innovative devices. Moreover, in additions to SaaS (which HP is already into), it’s high time for capitalizing on instant-on/turnkey enterprise cloud solutions. Cloud market is slated to break $60bn barrier next year, so it won’t hurt that much to venture into it with all guns blazing. With a growing spectrum of PaaS (Salesforce, VMWare’s CloudFoundry) and IaaS (Microsoft Azure, AWS) offerings, HP can start from leveraging Autonomy-Vertica coupling, and building from there, reaching towards the proud leader of cloud! We anticipate a glistening new identity for HP.