What on earth is going on at HP?
After three years riven by changes in CEO (three times) and in strategy (lost count), the company seems to barely know what it is or where it is heading. This month alone, it has made three extraordinary decisions.
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First, the latest CEO, former eBay chief executive Meg Whitman, announced to journalists at an event in Shanghai that HP is focusing its strategy and research and development (R&D) priorities to be a technology-focused hardware company. That’s hardware – the thing that makes much lower margins than software or services. She said, “PCs are an essential part of HP.” That’s PCs – the things that IBM decided to stop selling years ago.
What does that mean for its services business – formerly EDS? It seems services are there to support hardware sales. Ask IBM Global Services what it thinks about that. What does it mean for its software business? Apparently the same thing – leading to the second extraordinary decision, to sack Mike Lynch, the British entrepreneur who built Autonomy from nothing to sell it to HP for £7bn last year, apparently because Autonomy had a bad financial quarter.
On top of all that was the 27,000 job cuts, designed, says the company, to promote growth after a decline in revenue and profit. When did cutting jobs ever truly promote growth?
IT leaders are no longer sure what HP is – and if they are told it is a hardware supplier, you can’t think the conversations will go far beyond tactical purchases rather than IT strategy. At the moment, HP is an essential part of any purchasing shortlist – but what does it have that is unique or special that will help it over the line to win as many of those contracts as it needs to in the long term? It’s not clear to many people.
Cutting jobs and costs, focusing on the products that once made the company great – they are the signs of a firm that is living off past glories. All that R&D investment needs to go into tomorrow’s technologies, not yesterday’s. HP’s slogan used to be “invent”. It seems now it is “cuts”.
But perhaps the biggest worry for HP is not so much customer perceptions, as its shareholders.
Look at these numbers: HP’s 2011 annual revenue was $127bn – but its current market value is less than $42bn. If all HP’s customers got together, they could buy the company three times over for what they spend with it in a year.
By comparison, IBM’s market value is $226bn, Microsoft is worth $244bn, Cisco is $90bn, Oracle is $132bn. Even storage specialist EMC is worth more at $53bn. Apple, which in its latest quarter overtook HP as the biggest technology company in the world by revenue, is worth $570bn.
Which of those companies would you invest in?
From a customer perspective, HP’s saving grace is that it is simply too big to fail – it is the Goldman Sachs of IT. Many major Western governments run on HP – well, on EDS that is. The US Department of Defense is utterly reliant on what used to be EDS – even if the UK government is slowly reducing its commitment, and what is now HP Enterprise Services is a shadow of what EDS once was.
One UK government IT leader told me: “I could probably give you names for 27,000 EDS staff they should get rid of.”
Banks, major retailers, global manufacturers – they all rely on HP. So the company famously founded in a Silicon Valley garage is not going away, even if it’s not sure where it is going.
But it’s the patience of shareholders that will be wearing thin. Apple could buy HP, for cash, tomorrow, if it chose to (it won’t).
Through acquisition, HP has swallowed up some famous names – Compaq, EDS, Autonomy. Will the names of Hewlett and Packard be next?