IBM the big winner as HP shake-up shows polarisation of IT industry

Today is proving to be a busy day for IT journalists the world over, after HP – for not much longer the biggest technology company in the world – shocked the industry with three huge announcements:

  • Buying UK software firm Autonomy for £7bn;
  • Deciding to spin-off or sell its $41bn-a-year PC business;
  • Ditching its WebOS range of devices, just 49 days after launching its Touchpad tablet.

As with any strategic change of this magnitude, it will take time to determine the wisdom of HP CEO Leo Apotheker’s big bet on the future, but one thing that it proves is the sudden and dramatic polarisation of the IT industry. Well, when I say sudden, you could say sudden to everyone but IBM, whose strategy has been entirely verified by HP’s move – more of which below.

Apotheker justified the announcements by saying HP’s future lies in the cloud, software, and information management – the latter based increasingly on Autonomy’s world-leading technology for analysing unstructured data, an area increasingly known as Big Data.

Ditching the PC and devices business shows where the schism in the industry has developed.

From here on, there are two types of IT supplier – you either provide the software and internet services that consumers and businesses want to access, or you provide the devices they use to access them.

The future is increasingly looking as simple as that. The traditional big players in IT are moving to the back-office – datacentres, business applications, web services, virtualisation, storage, cloud, all the complex processing and analysing stuff that goes on unseen to the end user.

Alongside that, you have the device makers – PCs, laptops, tablets, smartphones and so on, which is increasingly a consumer-oriented market, that needs to think and act with the speed, flexibility and agility of fast-moving consumer goods. Increasingly, in marketing terms, Apple has more in common these days with Unilever or Procter & Gamble than it does with IBM or HP.

From the perspective of business technology, the big winner here is IBM. HP’s move basically says to its long-time rival: yep, OK, you were right. With the divestiture of HP’s PC business, it will also relinquish the title of world’s biggest IT company back to IBM – a title ironically gained by HP when IBM sold its PC business to Lenovo.

The long-term question marks now lie over two obvious candidates – Microsoft and Dell.

Although both suppliers are doing fine at the moment, with record financial results from Microsoft and impressive profit growth at Dell (albeit with a reduced sales forecast), they are sitting pretty. But how long will that last?

Dell remains bullish about the future of its PC business, even as it struggles to turn itself into a services company. The firm’s ultra-efficient supply chain means it can maintain respectable margins on the commoditised PC business in a way that most of rivals have been unable to match. But as that PC market fragments, and as businesses start to leave device purchases to users rather than doing big, costly corporate refreshes, even Dell’s supply chain may struggle to deliver the sort of returns that investors will expect.

For Microsoft – well, there’s been reams written already about how the world’s biggest software company will cope with the diminishing status of the PC. Microsoft is not going away, it is not going to go bust, but it is losing its influence and its status as an industry innovator. It has certainly lost its lustre compared to the likes of Apple and Google’s Android in the fast-growing handheld devices market.

Microsoft’s deep entrenchment in corporate IT means it is safe from the industry polarisation, and better placed than any to straddle that gap, but it will need to change and become a very different company to continue that success. Investors are already wary of a stock price that has declined and faded as Apple and Google shares have risen.

If you’re doubtful about the implications for Microsoft or Dell, just look at the example, of Cisco – a successful back-office focused supplier that has suffered tactically and strategically by a misguided attempt to straddle the two worlds of consumer/devices and infrastructure.

Looking more parochially, there is a further important debate to be had about what the sale of Autonomy means for the UK software industry – many observers are already calling this UK IT’s “Cadbury moment” in reference to US giant Kraft’s aggressive purchase last year of one of the UK’s flagship manufacturing companies.

But whatever the short-term impact of the Autonomy acquisition, the long-term future of the UK IT industry will need to reflect the polarisation of the global industry that HP’s latest news demonstrates to be the driving force behind a fundamental re-shaping of the technology world.