posted by Terry Shannon on Mon 7th Mar 2005 07:48 UTC

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Upper Caste or Cast Off?

It is my opinion that HP-heritage employees are held in much higher regard than Digital or Compaq expatriates. The expatriates are far more vulnerable to "rightsizing" than those who have never fallen astray from the HP Way. And if industry rumors are correct, HP's workforce underwent a significant quarterly decline during its 1FQ05 ended 31 January 2005. Significantly, HP made no mention of current headcount when the firm reported its 1FQ05 financials on 16 February. The firm did, however, promise more "rightsizing" in the current quarter and beyond.

The HP Way: Strategy or Stratego?

Stratego is a two-player board game board game from Milton Bradley. HP has far more than two players, but numbers of people at HP are responsible for corporate strategy; which, like the board game, involves lengthy conflict with rivals and requires skillful planning. The question is WHO are the people at HP tasked with strategizing?

According to the HP Web site, Executive Vice President and Chief Strategy and Technology Officer Shane V. Robison is responsible for shaping HP's overall corporate strategy and technology agenda, and steering the company's nearly $4B USD annual research and development investment. All of the company's senior CTOs and the director of HP Labs report to Robison. He also leads the company's strategy and corporate development efforts, including mergers, acquisitions, divestitures and partnerships. Clearly Shane plays a key role in calling the shots at HP; we can only wonder who beyond Shane and the Board of Directors are involved in developing and executing corporate strategy. When you're formulating and executing strategic decisions that affect approximately 150 thousand employees and your company's standing in the IT industry, you're not playing games. The entire strategic chain of command at HP warrants a stringent performance review, as things most certainly are not going according to plan.

Many Challenges

All of the above consists of a combination of factual information and personal opinion--and one rumour about headcount reduction. It is not my objective to malign or disparage anyone at HP. Perhaps things look different from the inside, but from the outside, there is plenty of justifiable cause for concern about the future of HP. The firm's latest financials demonstrate that the areas in which HP must concentrate to compete with IBM are largely weak. HP's Business critical systems (BCS) revenue declined 2 percent and networked storage revenue was down 1 percent. Within BCS, HP-UX revenue growth of 3 percent year-over-year was more than offset by NonStop revenue declines of 19 percent and ongoing, fully expected, declines in AlphaServer sales. In 3FQ04, StorageWorks revenue declined by 15 percent, this slowed to 10 percent in 4FQ04, and the decline nearly halted in 1FQ05. Competitors such as EMC have captured significant market share, so storage still faces an uphill battle. HP's software business consists largely of OpenView and OpenCall management software, and a subset of the components necessary to bring the Adaptive Enterprise strategy to market. HP lacks a middleware strategy, and thus is at a further disadvantage against IBM.

And a Few Opportunities

That said, HP possesses the services capabilities it needs to compete, and the financial resources to flesh out its software portfolio, but nobody outside the installed base seems to be aware of these assets. For example, the OpenVMS OS franchise, including hardware, peripherals, add-ons and services, represents nearly $4 billion in high-margin (>50 percent) revenue and is arguably the only "proprietary" OS in growth mode due to its bulletproof characteristics. Some 400,000 customers run the OS, yet HP refuses to aggressively market this cash cow. HP and its new CEO face a daunting challenge: deciding where the firm should best allocate its resources to delivering on the strategy that Michael Capellas and Carly Fiorina formulated almost half a decade ago.


About the author:
Terry Shannon has well over 20 years experience in the IT industry as a journalist, analyst, and consultant. A frequent speaker at IT events worldwide, Shannon has delivered more than 300 keynote and plenary presentations, and is the author of one book and hundreds of articles in the IT trade press. A former military intelligence analyst in Viet Nam, Mr. Shannon has an additional 10 years hands-on experience operating, programming, and managing hardware and software from a variety of vendors. He currently publishes the Shannon Knows HPC subscription-based newsletter and maintains a web site at http://www.shannonknowshpc.com. He can be reached at terry@shannonknowshpc.com .

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