The incredible shrinking Hewlett Packard - where does it go next?

In 2011, Hewlett Packard’s annual revenue was $127bn, making it the largest technology company in the world by sales at that time – yet its market worth was a comparatively meagre $42bn. It had just appointed its third CEO in three years and the only clouds in its strategy were dark stormy ones hovering over its future.

I speculated at the time that HP was too big to fail – the IT equivalent of the flailing post-crash banks, propped up by huge government outsourcing contracts.

Last year, HP ceased to exist – split in two after finally acknowledging that its consumer-facing PC and print business was incompatible with its corporate IT arm. The move raised the question of whether the two new businesses – Hewlett Packard Enterprise (HPE) and HP Inc (not Ink) – were no longer too big to fail.

This week, the shrinkage continued. HPE’s services business – the former EDS – is merging into CSC, so ending a contender for the worst IT acquisition of all time. EDS was the world’s biggest outsourcer when HP bought it for $13.2bn in 2008. By 2012 HP had written off $8bn of that sum, and subsequently cut tens of thousands of jobs in the division.

Now CSC – also struggling, and unable to sell itself despite interest from India – takes on the task of making two troubled IT services businesses greater than the sum of their parts.

The remainder of HPE is now a $33bn supplier that says it focuses on cloud computing – despite having no presence in the public cloud market dominated by Amazon Web Services (AWS).

In the early days of cloud, the old HP once decided to describe itself as the world’s largest cloud supplier, through the simple trick of rebranding many of its products and services as “cloud”. This has been a classic trick of old IT suppliers in recent years – they no longer sell servers, they sell cloud servers; that’s not a converged system you bought, it’s a private cloud.

Let’s be blunt – it’s not cloud unless it runs on someone else’s computers.

Like IBM and Dell, HPE has many giant global customers looking to modernise their IT infrastructure and turning to their longstanding suppliers for help. Suddenly their costly old datacentres become “private clouds” – or by adding a bit of vendor hosting, a “hybrid cloud”. Those customers will continue to prop up their old suppliers for many years yet, even as those old suppliers diminish and merge around them.

AWS, meanwhile, has hit a $10bn annual revenue run rate, growing 64% year on year. This week even Salesforce.com, itself one of the pioneers of cloud computing even before it was called cloud computing, decided to move much of its infrastructure to AWS. If even the top cloud companies think AWS-style commodity cloud is best, then inevitably there will be a time when those giant global customers realise it too.

How long will it be before we hear about HPE’s plans to merge with another shrinking former rival? Place your bets…

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