HP Touts Progress in Key Sectors

Hewlett-Packard CEO Carly Fiorina opened the company’s annual analyst meeting Tuesday by blasting the idea that HP is “stuck” between competitors IBM
and Dell in key IT categories.

The CEO also refused to confirm a report that HP plans to combine its profitable consulting group with a struggling unit that sells computer hardware to businesses.

Fiorina and her top executives held court at the meeting in New York to discuss the progress of the Palo Alto, Calif., company in 2003 and uncorked some expectations for 2004.

The chief attempted to dispel any notion that the Compaq purchase and integration has held back the progress of HP in its goal to outdo major rivals and refused the assumption that HP, which projects its 2003 revenue at $73.1 billion, is a follower in IT strategies.

“It is popular to say that HP is stuck between IBM and Dell,” Fiorina said. “It is particularly popular for our competitors, IBM and Dell, to say we are stuck between the two but the facts don’t support the thesis.”

The executive launched into a litany of categories in which the company leads, citing figures from market research firm IDC. She alluded to HP’s growth in storage for the third quarter of 2003, noting that the company holds a leadership position of 50.7 percent of the worldwide market for disk storage.

Citing HP’s 31.4 percent share in Unix servers, Fiorina also quickly mentioned that demand for Unix servers has slowed, and balanced that by highlighting her company’s growth in Linux and Windows market share, an area in which HP used to be weak.

Overall, Fiorina cited IDC numbers that showed HP retained leadership in nine of 12 major IT categories: IDC showed HP as the No. 2 company in external RAID storage behind EMC; No. 2 in handhelds behind Palm; and No. 2 in desktops behind Dell.

Noting that IBM has lost market share in its PC business for nine out of the last 12 quarters, Fiorina repeatedly stressed that those not in a leadership position have trouble making money.

“This is not a company stuck,” Fiorina repeated. “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.”

Fiorina also would not confirm a Wall Street Journal story that said HP would merge its consulting group with the hardware businesses, noting that HP would be “permanently breaking out software, services, enterprise servers and storage” to align the company’s enterprise systems.

“When we are ready to make organizational announcements we’ll make them,” Fiorina said.

Citing unnamed sources, the report said HP executive vice president Peter Blackmore would move from head of the Enterprise Systems Group into a division that would consolidate all computing activities and services, called the Technology Solutions Group. This would be led by Ann Livermore, currently executive vice president of the HP Services Group.

This suggests that HP is looking to integrate hardware servers and storage machines and software with the services group to advance its utility computing strategy, which it calls “Adaptive Enterprise.”

Mary Johnston Turner, vice president of Enterprise Strategies at research firm Summit Strategies, said the move would make sense.

“Customers keep pushing for better ways to tie IT investment to variable business needs and vendors like HP have been answering with creative pay-as-you-go financing, managed services and outsourcing offers,” Turner told internetnews.com. “As a result, more and more enterprise-class IT products are being sold as part of services offerings. Even UDC [Utility Data Center], one of HP’s flagship Adaptive Enterprise products, is sold as a service — we estimate 50% of current UDC deals are part of services sales already.”

Turner further said that integrating the groups should make it easier for the HP sales force to offer customers both “do-it-yourself and managed services options” and noted that customers are likely to appreciate only having to deal with one organization.

Fiorina’s righteous defense comes less than a week after IBM executives questioned HP’s approach and momentum at its own analyst meeting.

Fiorina also went on the offensive against Dell, classifying it as “low-cost, low-tech” while IBM is “high-cost, high-tech.” She noted that HP is attempting to strike a fine balance by offering “low-cost, high-tech,” referencing the adaptive enterprise strategy.

Fiorina further questioned IBM’s push for attacking solutions vertically, through technology silos, and argued that customers are going to prefer the more sprawling, but “compelling” horizontal organization that HP is offering with its triple-pronged for enterprise, consumer and small- and medium-sized businesses (SMBs).

“We play in all 3 segments because they offer us the opportunity for real profits and real growth,” Fiorina said. “We get a better bang for our R&D buck.”

This is a “horizontal, heterogeneous, networked world,” Fiorina said. “There is no next big thing. There is a collection of things,” that impact the purchase decisions of CIOs, she said. These include price, reliability, security, manageability, and adaptability.

To successfully apply HP’s adaptive enterprise model, however, Fiorina said customers must simplify their often complex business processes, by making sure their infrastructure is standardized and modular.

“Customers can mine a lot of money out of their existing IT by focusing on these projects,” she said.

Going forward, Fiorina said HP would continue to look at acquiring smaller companies to bolster its important management software portfolio, an area in which it has already invested $100 million, to support its utility computing plan.

The CEO also stressed that HP has no interest in acquiring large services companies — specifically EDS — because “the economics around consulting are very challenged.”

As if to fortify its strength in services, an area in which it competes fiercely with IBM, HP Tuesday also announced more than $1 billion in new services wins.

Leading the way was an eight-year $50 million deal with the U.S. Postal Service in which HP will provide a remote user help desk, on-site technical support, remote server monitoring, and management for the messaging infrastructure.

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