RealTime IT News

HP Divisions In Flux

CUPERTINO, Calif. -- Hewlett-Packard is reinventing itself once again.

The company confirmed Wednesday during a briefing with editors that it will combine its HP Services and Enterprise Systems Group (ESG) into a new Technology Solutions Group (TSG).

Services head Ann Livermore is expected to run TSG, with former ESG head Peter Blackmore focusing on sales. HP played down the changes at a meeting with analysts in New York Tuesday, saying the two groups have been working together since June.

"This is not a company stuck," said HP chairman and CEO Carly Fiorina. "This is a company that leads in virtually every category in which we compete and one that is gaining share in every category in which we are No. 2."

Merrill Lynch technology analyst Steven Milunovich said the management changes make sense.

"Livermore's strength is operations. She has [profit and loss statement] responsibility, while Blackmore excels at sales," Milunovich said in a note to investors. "HP will increase financial disclosure by providing a revenue and operating profit breakdown by ESS (enterprise hardware), Software, and Services. Part of the reason is to highlight the losses in Software as HP makes investments and show ESS as increasingly profitable."

This is not the first time that HP has revamped its divisions to address market changes. Following the merger, HP moved fast to bring Compaq brands into its house, trimming personnel and products from its lineup that were redundant. To date, HP has let go more than 24,000 employees and said an additional 2,000 staff will be shown the door soon as part of an ongoing cost-cutting program.

Critics are quick to point out that HP still tends to have too many specialists, confusing the customer. The company has changed 40 percent of its relationship managers in the last six months, which no doubt has somewhat disrupted sales and might continue to do so for the next couple of quarters.

"Combining services with hardware is meant to further align the selling motion," Milunovich said.

HP Services Director Pat Adamiak told internetnews.com the company is focused on its primary markets: public sector, financial services, manufacturing, and telecommunications (what HP calls network and service providers).

"Our win here is our reputation for innovations and standards," he said. "Unlike EDS or IBM, we are very client centric and we run a pretty agnostic program. We do not have a forced view of throwing out other vendors' stuff and we're willing to work with the client and keep the CIO in the deal."

It's important to not that both Enterprise Systems and Services divisions recently returned to profit, joining HP's bread-and-butter Imaging/Printing and Personal Systems groups.

For example, the Enterprise Systems division, the group that stewards servers, storage and IT software, posted revenue of $4.1 billion in the company's fiscal third quarter. The group managed to keep HP's share of the industry standard server market above 50 percent in 15 countries, especially in Europe. HP also leads the x86 Linux market with 26 percent worldwide share.

Meanwhile, HP Services revenue was $3.2 billion for the third quarter, up 22 percent for the year. Revenue in consulting and integration declined 10 percent year-over-year, reflecting continued weakness in the consulting market, but that hasn't stopped HP from putting more weight behind its Managed Services (outsourcing) initiative. The company has been increasingly vocal about how it prefers technology to "consulting" as it rolls out additional products aimed at the "Adaptive Enterprise."

"Over the past year, HP has aggressively gone after and won a number of information technology outsourcing deals that establish it as a serious player in the market," said Traci Gere, vice president at analyst firm IDC. "Enterprises considering outsourcing deals are calling HP to the table and, increasingly, HP is making the 'short list' and winning."

The Services division, which boasts 65,000 employees serving 168 countries, said this week it has scored upwards of $1 billion in major new contracts from clients such as Novell, Land O'Lakes and the U.S. Postal Service in addition to last week's announcement of a $600 million contract with the Bank of Ireland.