HP: Is it spreading itself too thin in the IT wars?

HP: Is it spreading itself too thin in the IT wars?

Summary: Hewlett-Packard's acquisition of Palm is more than a move into the smartphone market. The purchase is yet another front in a tech war that's alienating current partners and spreading HP too thin.

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Hewlett-Packard's acquisition of Palm is more than a move into the smartphone market. The purchase is yet another front in a tech war that's alienating current partners and spreading HP too thin. Can HP manage battles in almost every corner of the technology industry?

Add it up and HP owns a piece of every part of the information technology stack now. That approach may be swell for cross selling, but focus is a potential problem.

Let's go through the lay of the land:

  • HP competes with IBM and Accenture in services;
  • Cisco and Juniper in networking via the 3Com purchase;
  • Oracle, Cisco and others in the data center and IBM and Dell on servers;
  • Apple, Acer, Dell, Lenovo and others on PCs;
  • Lexmark in printers, clearly HP's most dominant market;
  • EMC and NetApp on storage;
  • And now Apple, Google, Microsoft, Nokia, Research in Motion, HTC, Motorola and others via the Palm acquisition.

At the Gartner conference last year, HP CEO Mark Hurd chided IBM for getting out of the PC business. He said you need to be credible in all parts of the enterprise IT stack. Hurd wasn't kidding. He now has the everything from the data center to the roughly 3-inch screen in your hand.

Is that really true though? After all, IBM is doing just fine being a software and services company. IBM bet big on software---Cognos, Rational Software and others--- and Big Blue has reinvented itself by ditching low-margin businesses.

On IBM's latest conference call, IBM CFO Mark Loughridge said:

If you look at the ongoing strategy we have, we want to move into intellectual property-based businesses that are highly scalable and related to the -- driving these Solutions offerings that we have. Solutions offerings like business analytics, as an example. What we're doing on the flip side, on the divestment side, is moving out of businesses that have lower growth prospects and lower margin prospects.

Indeed, most of HP's competitors maintain a similar focus. Sure, Oracle is in the hardware business now via the acquisition of Sun, but the Larry Ellison express is driven by databases and applications. Cisco has also spread out, but the company is all about the network whether it runs through the data center, enterprise infrastructure, set-top box or your living room.  EMC and NetApp have played Switzerland nicely in the data center architecture scrum and Apple and RIM are clearly focused primarily on smartphones and mobile devices.

And then there's HP and a bevy of question marks. The company has renamed its EDS unit in a move that arguably negates a strong brand. 3Com is now HP Networking. HP wants to be known as more than a PC and printer company, but it will face challenges. Only delivering strong results across its units---especially the new ones---will change the perception of HP over time.

Can HP deliver? Financially, there's no indication that HP is about to slip. However, you have to wonder how these moving parts will gel into one cohesive culture.

The other big issue for HP will be the shifting of long-time alliances. As Mary Jo Foley noted you have to wonder how the Palm acquisition went over at Microsoft headquarters.

The HP-Cisco relationship has already gone belly up. Cisco's move into the data center changed all of that last year. HP retaliated by acquiring 3Com and breaking out the Converged Infrastructure architecture. Heather Clancy says that aside from both HP and Cisco seeing the network as the center of the data center the two parties don't agree on much. Clancy writes:

HP would love nothing short of complete data center domination: An all-HP-hardware, all-the-time data center approach, where it controls servers, storage and the network. Yes, folks, one throat to choke. The question is, do you really want it?

Cisco's approach has been to form alliances with the likes of VMware and EMC and give you a preconfigured data center that would look like one-throat to choke when you make a support call. This battle will play out through the channel and system integrators.

These intense battles are playing out in every category for HP. It's a daunting and potentially very tiring war. HP is fighting trim now, but this war is going to be a protracted one. In February, Hurd laid out the strategy:

I believe HP has the best and the broadest portfolio in the industry. We are number one or number two in virtually every category where we compete. We will continue to invest heavily to ensure that we maintain our technology advantage and align our portfolio to lead the evolution in the marketplace.

The next-generation data center will be delivered by the Company that can best leverage scale, industry standard hardware that is differentiated into software, and financed and delivered via global services. Printer pages will be awarded to the company that can deliver the best quality, usability, speed and affordability. The PC business will be won by the company with scale, innovation, brand and global reach. As I consider the market trends and survey the competitive marketplace, I like HP's chances to win.

Palm doesn't necessarily fit that equation. HP isn't anywhere the No. 1 or No. 2 in the smartphone market. Maybe that changes, but for now you wonder if there's an HP version of Yahoo's peanut butter manifesto a few years from now.

Related: How HP thinks about R&D: It's about new products not spending

Topics: Cisco, Data Centers, Hardware, Hewlett-Packard, IBM, Storage

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12 comments
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  • Palm is small and cheap to operate, "spreading too thin" is kinda FUD

    palm has less than 1000 employees, and annual expense of couple of hundreds million dollars.

    HP doesn't need to spend much. while upgrade their slate (and any subsequent portable devices) to a better situation. why not?
    crislevin
    • True but Palm also has a long history of ...

      ... poor customer service which HP must overcome.
      M Wagner
  • Hurd wants HP to be the IBM of old ...

    The lesson that was learned by many CIO's from IBM was that "one throat to choke" works both ways. If your IT supplier is a gorilla, then grabbing that throat is a risky business. Many CIO's learned that the hard way, when their IT account execs routinely went over the CIO's head directly to the CEO.

    That's Mark Hurd's real goal: to be so big in your IT shop that trying to choke them would be a career-limiting move. Nice for them, risky for you.
    terry flores
  • Web OS for HP peripheral devices

    I believe that the Palm acquisition will allow smaller devices to run scalable operating systems then a bloated OS. HP will then create their own robust applications for remote monitoring, notification, and maintenance from these portable devices.

    For example, the image above shows a WebOS tablet, now if that was something HP had for servers, the user could just walk up to a cabinet and receive all server information with only a few taps on the screen.
    Maarek
  • RE: HP: Is it spreading itself too thin in the IT wars?

    A WenOS based multifunction device could be a fantastic
    thing (Ie, Printer, Scanner, Fax all connected to the
    internet) in ways we have not yet experienced.
    Connect an SD card to the device and post it to Snapfish
    and order a set of professional prints, Flickr, Facebook?
    sure.
    Receive a fax and email it to your PC or phone? why not?
    Send a fax via your Multi-Function device from your
    phone? of course.
    And the list can go on.
    It can be a beautiful thing if implemented properly; which
    HP has the muscle to do.
    Also HP is a dominant player along with GE or Philips in
    medical devices. Having WebOS can be fantastic and
    eclipse the formers when it comes to hardware integration.
    Most other high-end medial devices run on a locked-down
    version of Windows. That might not be desirable of course;
    and WebOS touchscreen integration fits right in.
    Moving forward, WebOS without a GUI can be a great
    embedded OS for their switches as well (that's a bit far-
    feched but far from impossible).
    After all, Cisco is very,very, very slowly moving away from
    IOS into a more open and flexible OS where IOS is truly
    monolythic.
    emiliosic
  • Yes! Way too thin ...

    I have been in the industry for thirty years and have never been enamored with HP's PC offerings. There products have always been a little too "cheap" in quality and the company has always eben a little too difficult to deal with.

    That's said, I have come to value quite highly the HP Laserjet and DesignJet lines of printers.

    In recent months, however, HP has so disrupted it's supply-chain that the availability of printers and (most importantly) repair parts has placed it's customers of high-end printers into a very precarious position. It doesn't matter if the make the best printers in the world if you cannot deliver them or provide parts so your resellers and customers cannot maintain them.

    If HP cannot address these supply problems, they could find themselves in very dire straights in very short order.
    M Wagner
    • Uh...

      [i]"I have been in the industry for thirty years and have never been enamored with HP's PC offerings. There products have always been a little too "cheap" in quality and the company has always eben a little too difficult to deal with. "[/i]
      I'm sorry but either you were smoking drugs in the 90ies or like many you're confusing HP with Packard-Bell or Compaq. HP Vectras and Kayaks were some of the best built systems on the market, and Netservers were bulletproof. HP's quality took a nosedive after the Compaq fiasco in 2002, when they gave up their solid products in favor of the high volume mass production crap they pump out today. HP created the first "netbook" computer in 1983, the HP 110 Portable, and it could take 60G (yes, SIXTY!) acceleration and survive. My Portable Plus lasted me 6 years, and then my little sister used it for for after that, and then gave it to someone else who continued to use it. My 200LX, manufactured in 1994, still works great today. Find me a Palm that is that old and still in use.
      No, HP used to be all about engineering, as your older printers attest. Today they take the Nike approach.
      914four
  • Deja-Vu????

    I recall this same topic was hashed and re-hashed many years before.
    Narg
  • RE: HP: Is it spreading itself too thin in the IT wars?

    Anybody think that maybe HP is trying to be what
    IBM used to be--an across-the-board business
    solution for hardware and software? IBM used to
    supply the enterprise with everything needed from
    the mainframe computer all the way down to the
    adding machine on the desktop, including the OS,
    database management tools and everything else in
    between. If HP manages to tie their entire product
    line together with a common OS that truly
    integrates every product (something Windows has
    been unable to do) then they could truly challenge
    IBM as the business machine supplier of choice.

    The computing environment is changing, and
    Apple appears to be spearheading that change
    with the iPad; HP, with its ability to design and
    build their own products from the ground up,
    could integrate Palm's WebOS across all systems
    through its networking expertise to the point that
    the hand-held Palm Pre could talk to any device
    from the Slate up to their server array; making any
    piece of data accessible to any associated device at
    any time, probably through a touch interface as
    complete and seamless as ST:TNG made the
    Enterprise appear. Microsoft is clearly not looking
    far enough ahead, and if HP doesn't step up
    quickly, Apple's iPhone OS could end up becoming
    the OS of choice into the future. We'll just have to
    see where it all goes.
    Vulpinemac
  • RE: HP: Is it spreading itself too thin in the IT wars?

    I love article titles that include a question mark.
    So inviting for response! However, before answering
    the large question, a number of smaller questions
    raised in the article must also be addressed. A couple
    more points also need to be made.

    The article states:
    >Add it up and HP owns a piece of every part of the
    information technology stack now.

    There remains at least one major hole in the HP stack:
    software. True, the article said HP owns a *piece* of
    every part of the IT stack. However, that is mostly IT
    management software and systems software sold with its
    hardware. HP is greatly lacking when it comes to
    applications as well as middleware. Yet it would seem
    that software is one of the greatest opportunities for
    revenue growth as well as increasing margins for HP.
    Strange they aren?t doing more here it? More on this
    later?

    The article also nicely went through a ?lay of the
    land? ? essentially a look at HP competitors up and
    down the IT stack it offers. That stack didn?t even
    list software from HP. It did however list a bunch of
    mobile device players. So far HP has floundered in the
    smart phone market. And, with the acquisition of Palm,
    HP execs have gone to some length to emphasize that
    they are really after the broader mobile device market
    which includes tablets (and according to HP, many
    other types of mobile devices that have yet to
    emerge). My interpretation of HP?s commentary is that
    they don?t really expect to become leaders in the
    smart phone space where Palm currently plays.
    Instead, they plan to invest and extends Palm?s WebOS
    to other emerging mobile devices.

    From the article:
    >At the Gartner conference last year, HP CEO Mark Hurd
    chided IBM for getting out of the PC business. He said
    you need to be credible in all parts of the enterprise
    IT stack. Hurd wasn?t kidding. He now has the
    everything from the data center to the roughly 3-inch
    screen in your hand.

    Well? he did say that. But he still doesn?t have
    anything close to a broad software offering.

    From the article:
    >Is that really true though? After all, IBM is doing
    just fine being a software and services company. IBM
    bet big on software?Cognos, Rational Software and
    others? and Big Blue has reinvented itself by ditching
    low-margin businesses.

    Ahem? Good point.

    >Can HP deliver? Financially, there?s no indication
    that HP is about to slip.

    There is no doubt that financial performance is *the*
    key indicator of a company?s success. HOWEVER, that
    needs to be long term financial performance. Not just
    quarter to quarter and not just year to year. It must
    include different time periods, different economic
    conditions, different competitive environments, shifts
    in technology, and so on. Hurd is still early in his
    tenure and thus has not experienced many of the listed
    challenges. What he has indeed shown so far is his
    ability to cut costs and commoditize. Yet, that
    process is not complete. And that process can only
    work for so long. Then revenue growth, for one, will
    dramatically surpass cost cutting in terms of
    contribution to the bottom line of net profit.

    The revenue growth could come in various forms
    including organic and acquisitions. Hurd has already
    been involved in large acquisitions including EDS,
    3COM and Palm. Yet the integration strategies for EDS
    been, once again, to acquire and cut. Cut, cut, cut.
    The writing seems to be on the wall for 3COM as well.
    Hurd has emphasized his commoditization approach for
    lower cost per port in the datacenter. That means
    costs cutting.

    So, what we have so far is: new CEO comes in and
    initiates cuts on a highly inefficient company. These
    cuts immediately start turning to increased profits.
    Hurd, as a truly masterful cost cutter, is able to
    keep this going for years. He also made a couple
    great moves (in my opinion) in terms of acquiring EDS
    and 3COM. EDS has been profitable and he has extended
    the profit improvements through more cost cutting.
    Chop, chop, chop.

    Cost cutting alone can only last so long before it
    breaks a company. Hypothetically, Hurd could continue
    acquiring companies and cutting costs somewhat
    indefinitely. But that is not completely realistic.
    There are only so many companies to buy and
    commoditize. Snip, snip, snip.

    Somewhere along the line, the cost cutting must end
    and the organic revenue growth must begin. HP has
    suffered a bit in this area. Of course the last couple
    years have not been all that conducive to growing
    hardware revenue. Still, substantial organic revenue
    growth must eventually start for the company to
    continue its earnings growth trajectory. For instance,
    HP will not be able to compete *long term* or
    *broadly* against Cisco in the network without
    substantial investment and innovation. Of course much
    of HP?s innovation and investment DNA has been
    obliterated through cost cutting. Perhaps it will
    return. Only time will tell.

    The article also talked about some of the strategy
    Hurd laid in February:
    strategy:
    >The next-generation data center will be delivered by
    the Company that can best leverage scale, industry
    standard hardware that is differentiated into
    software, and financed and delivered via global
    services.

    Take careful note of the sentence above. That is the
    HP datacenter strategy. It has 3 parts:

    1. Commoditize all things hardware. Trim, trim,
    trim.
    2. Use software to help differentiate hardware.
    3. Leverage hardware for creating services
    revenue.

    And now I can finally address the question from the
    title of this article. Is HP spreading itself too
    thin in the IT wars? I believe the answer is ?yes and
    no.? The ?yes? is that HP does not have sufficient
    market power in some segments such as networking to
    establish a leadership position without partnering for
    certain critical elements. The article does well on
    this point. The ?no? is that the Palm acquisition does
    not appear to push HP over any particular scope or
    focus boundary. That would be like saying ?Sony is
    spreading itself too thin by getting in to e-readers.?
    Sony is going to go after all types of emerging
    consumer devices; that is what it does. Likewise for
    HP: Mobile devices are going to be of growing
    importance for the enterprise. Therefore HP has
    acquired an asset in Palm it believes will help with
    that.

    To sum it up, HP is a hardware company. Hardware. Lots
    and lots of hardware. But what about software? Yes, we
    are back to the software discussion that started this
    entire response. That is the real question mark.
    Well, sort of. Even though software is the true
    missing link for HP, the company does not seem to be
    addressing it. So the question has been answered and
    it didn?t have the word ?software? in it. The
    strategic statements and actions all suggest that HP
    has finally given up its bid to deliver a broad
    software portfolio. While the company hired Tom Hogan
    to lead HP Software a few years back, he is no longer
    heading HP Software. In fact, there no longer appears
    to be a single individual (as in one VP) at HP that
    can be said to solely own the entire HP Software
    business. HP Software now appears to be co-mingled
    sufficiently with services that the hope for a real
    software push outside of IT management (aka Business
    Technology Optimization; aka OpenView) appears to be
    lost. Some may recall the days when Lew Platt was
    still CEO of HP? The saying then for HP was ?Hardware
    is Job 1 and Software is Job 2.? The idea was that HP
    was only interested in software to the degree that it
    drove hardware sells. Welcome back to the early 1990s
    HP. When it comes to competing against IBM -- the
    company which HP has historically measured itself
    against most often ? it isn?t so much whether HP is
    spreading itself too thin in hardware. It is simply
    that HP is a non-starter in the software game.
    paul@...
  • RE: HP: Is it spreading itself too thin in the IT wars?

    With this question comes an assumption that you are talking about the purchase of Palm! If So, then the idea is flawed as to WHY they bought Palm! In most IT corners we look at it as the ownership of the WebOS! HP needs to combat Apple's Ipad as quickly as possible on the tablet front, especially with one that fits more in line for the IT enterprise needs! The WebOS, tweaked a little bit, fits the bill nicely! With their vast resources, HP can get the tablet out with WebOS far sooner, with a lot better OS than using Windows 7 in ANY configuration! Every account of tablets using Win7 as the OS, seems to be slow, bloated, and eats battery life quickly! The WebOS can be not only fast and give great battery life, it is far more easier to write apps for than either Windows 7, OR the Iphone for Ipad OS!

    Although possible, Smartphones featuring the WebOS, is a secondary thought here! Yes they can take Palm into the next level (probably NOT using the Palm name, but rather something like Ipaq), but they need to focus on the tablet use first and foremost! I believe that it is entirely possible to have an Ipaq tablet with the WebOS out this summer! (And to catch up to Apple they NEED to!)
    barefoot1976
  • RE: HP: Is it spreading itself too thin in the IT wars?

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