HP: Where next for the troubled Silicon Valley giant?

Numerous management changes and acquisitions have created confusion about HP's strategy, but is it too late to bounce back?

Hewlett-Packard (HP) used to be seen as the “gentleman of the IT world”, with its salesforce banned from insulting the competition while marketing the hardware giant’s wares.  

Unfortunately, its competitors found taking pot-shots at HP helped them win deals, as the company didn’t fight back. As time progressed, HP decided it had to behave differently. This decision is where the problems started. 

In 1999, CEO Lewis Platt made splitting the company in two one of his final acts and, in the process, created Agilent to focus on what had been HP's scientific equipment and semiconductor businesses. 

This was a pretty successful move, creating a new HP that could focus on a core portfolio of computer equipment.

Acquisitions and management changes

Carly Fiorina, who joined the company as CEO in July 1999, decided HP needed to grow while also removing some competition from the market. In 2000, Fiorina made a bid of around $18bn for the IT services arm of advisory firm PricewaterhouseCoopers (PwC).

The deal did not go ahead and IBM eventually acquired PwC for $3.5bn in 2002. Meanwhile, HP bought PC maker Compaq the same year, with Compaq having acquired Digital Equipment Company (DEC) in 1998.

DEC had operated an effective professional services arm, but by the time HP bought Compaq much of that had disappeared. Instead, HP gained more hardware with a large crossover with its existing portfolio.

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Fiorina oversaw several more acquisitions in a number of areas, most of which HP struggled to deal with effectively. In 2005, the board forced Fiorina to resign, putting in place an interim CEO until Mark Hurd took over the role later that year.

Hurd also went on an acquisition spree. A couple of the largest were helpdesk systems supplier Peregrine Systems and test software firm Mercury Interactive. Again, HP seemed to struggle with integrating these companies into its existing portfolio. 

Hurd was sacked in 2010 after allegations about his personal conduct emerged. Another interim CEO was appointed before being replaced with former SAP chief Léo Apotheker.

Apotheker also decided to make his mark on the firm through acquisition. The biggest and most complex of these deals was Autonomy in 2011, which is still proving a distraction for HP as the legal fallout from the purchase continues.

Apotheker did not last long. After HP’s capitalisation slumped by $30bn, he was fired and replaced with fellow board member Meg Whitman, who previously ran eBay, which brings us to the here and now.

The Whitman era

When Whitman arrived, she was faced with a company that was in bits and where several parts of the business were hardly interacting. Employees involved in acquisitions often left, leaving behind a lack of basic knowledge about what the firm had acquired. 

Although top-line revenues looked OK, the stock market was unimpressed, leaving its channel partners and customers worried about what the future might hold for HP.

Whitman had to act, but also had to be seen as different to those who had gone before. If she moved too fast, everyone would see her as another new brush trying to sweep clean. If she moved too slow, HP’s competitors could pounce and take existing customers away.

Now the company is preparing to split again, 16 years on, into enterprise and lower-end offerings.

The “low-end” being the PC, laptop, print and “other” markets that HP covers, leaving the enterprise side of the business with servers, networking, storage and professional services.

Meanwhile, the world has been changing around HP. Cloud computing and converged systems have emerged, and IBM, Dell and others have been better at responding to these changes.

The world has been changing around HP. Cloud computing and converged systems have emerged, and IBM, Dell and others have been better at responding to these changes

 

HP has tried many different approaches to cloud. It has had proprietary clouds and tried CloudStack and OpenStack, with its current choice being a modified version of the latter called Helion

The idea was to offer a full-service hybrid cloud capability, so customers could buy Helion and run it as a private cloud integrated with Helion Public cloud operated by HP as required.

However, Bill Hilf, HP’s senior vice-president of cloud, now seems to have moved away from the idea. In his view, competing with the big public cloud providers, such as Amazon Web Services, Google and Microsoft does not seem to be the way for HP to progress. Instead, HP is winding back and will be a private cloud-only provider.

Hard times ahead for HP

If HP manages to make itself the Switzerland of the cloud world this could work, as long as it draws on the acquisition of workload management firm Eucalyptus to make workload portability easier for users. Then it could find itself as the provider of bidirectional workload management between Helion private and other providers’ public clouds.

However, will this be enough for HP to compete effectively? As a private cloud provider, it will hope to maintain its hardware base in private and co-location datacentres. It is also hoping to be a large hardware supplier to the public cloud providers – yet many of these have taken a build-it-yourself approach to the hardware.

The future for HP, though, still seems pretty grim. It has not managed to articulate exactly how the split (timed for October 2015) will work out. It is confusing its existing customer base with changes to its strategy, and is struggling to differentiate itself in a market where its largest competitors are constantly evolving propositions, and new competitors are emerging all the time.

The split will take a lot of focus from HP’s senior management. The channel has to be kept happy, customers have to be given a warm embrace through it all, and Wall Street has to be successfully managed too. All this while responding to a rapidly changing market.

Whitman has her work cut out, as does the whole HP board, as continuity planning has not been a strong point of HP’s since before Platt left.

Hopefully, the board is already grooming Whitman’s replacement for when she inevitably leaves to ensure a smoother handover than has so far been the case with previous changes at the firm.

This was last published in April 2015

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