SAP implementation contributed to HP shortfall

Glitches during a SAP supply chain rollout hit Hewlett-Packard bottom line figures hard, and the fallout apparently led to the...

Glitches during a SAP supply chain rollout hit Hewlett-Packard bottom line figures hard, and the fallout apparently led to the sacking of three HP executives.

While delivering the company's financial results for the quarter, HP officials reported that the Enterprise Servers and Storage (ESS) group saw revenue shrink 5% year on year to $3.4bn (£1.8bn) - in large part due to the troubled software implementation.

HP said that among other factors such as aggressive discounting, a US-based "migration to a new order processing and supply chain system was more disruptive than planned". 

"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage," HP chief executive and chairman Carly Fiorina said. "We therefore are making immediate management changes." 

Fiorina did not specify what those changes were but the company later announced that three major sales executives, including former server group head Peter Blackmore, had been fired. Blackmore was executive vice-president of the Customer Solutions Group (CSG), which was formed last December to manage direct sales to enterprise and public-sector customers worldwide 

Fiorina announced the changes in an e-mail first sent to HP's employees, then released to the media.  

An HP spokeswoman confirmed that the problematic migration was based around SAP software. 

Fiorina said the problems cost the ESS group about $400m in revenue and $275m in operating profit. 

She said, "We executed poorly on the migration." While the problems primarily hit HP's Industry Standard Server business, they also affected the Business Critical and Storage businesses. Although the company worked to ensure product availability, HP still lost sales and was forced to fulfill direct orders through channel partners and expedite other orders via air shipments, moves that cut into the company's gross margins. 

But Fiorina ultimately struck an optimistic note, saying, "We believe these issues are largely behind us." 

The company said Blackmore will be replaced by Mike Winkler, currently executive vice-president and chief marketing officer. Winkler will keep those responsibilities in his new role.

Jim Milton, CSG senior vice-president and managing director of the Americas region, and Kasper Rorsted, CSG senior vice president and managing director for the Europe, Middle East and Africa region, were also dismissed.

Milton will be replaced by Jack Novia, senior vice-president and general manager of HP's Technology Solutions Group. Rorsted's replacement is Bernard Meric, senior vice-president of HP's Imaging and Printing Group in EMEA. 

The fourth-quarter backlog for ESS amounts to about $120m, but HP believes its shipping schedule will be back to normal by the end of the month. Fiorina also predicted the group would be profitable before the end of the fourth quarter. 

HP is a close partner with SAP and offers specialised consulting services around SAP's supply chain and ERP software. 

SAP Americas spokesman William Wohl said the companies have a "strong and productive relationship, first as a customer and as a strategic partner. The relationship continues to expand even today, as teams talk about deepening that customer relationship. 

"We can't talk specifically about what's happening inside HP," Wohl said, but he indicated that in HP's statements, no blame for the problems had been attributed to SAP's software.

Marc L Songini writes for Computerworld

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