HP's hedge against extinction was its revenue diversification, open management style and willingness to change with the market. Printers, plotters, handheld calculators, electronic parts, medical instruments and test devices all served to broaden the company's base. Therefore, when the industry soured on minicomputers -- favoring servers and workstations from Sun Microsystems and Apollo, and PCs from Apple Computer, Compaq Computer Corp., Dell Computer Corp. and IBM -- HP had deep enough pockets and diverse enough revenue streams to right itself. In doing so, it bought Apollo and consolidated a strong second place in the Unix server and workstation market. HP also built a PC business that at times competes well. The company took strong positions in storage devices and backup systems and continued to serve the test- and measurement-device markets. And, of course, it firmed up its dominance of the laser and ink-jet printer markets.
Now the company again finds itself in need of a new direction. At this time last year, HP had made no major additions to its Unix server lineup in almost two years. It offered little in the way of e-commerce software, had only a tiny professional-services group and lagged well behind Sun in third-party Internet application support. The time was ripe for a good shake-up -- and that's just what HP got. The spin-off of Agilent Technologies and an unsuccessful bid to buy the consulting arm of PricewaterhouseCoopers leave no doubt that the house is rockin' over at HP, so we went knockin' to learn about the new direction.
Grand Vision
We asked HP for an interview with Ann Livermore, president and general manager of the company's Business Computing Organization. In true HP style, we didn't just get an hour with Livermore; we got about a half-hour with the BCO chief and a full day of interviews with managers who report to her. Coming off a quarter of poor earnings and a blunt, introspective, corporatewide reassessment orchestrated by HP CEO Carly Fiorina, everyone in the BCO was ready to sing us the new HP fight song. What the world needs, according to HP, is an "always-on infrastructure [that] delivers e-services [to a bevy of] 'mobile appliances.' " Each of the interviewees sang us that song. With those lines. In that order. They also pointed reverently to a diagram, which Livermore had drawn earlier in the day, displaying these three markets as linchpins of HP's envisioned industry "ecosystem" -- whatever that might be.
After HP's spinning off of Agilent, the company's test and measurement arm, the song rings true to HP's abilities and strengths. The consumer side of the house, with which we did not speak, is entrusted to make or contribute to the making of all those mobile appliances. The BCO will provide the always-on infrastructure, "just like a utility," and the BCO's newly formed software and services groups will help companies in a variety of industries deliver and use "e-services." It seems a grand vision, one worthy of HP. At first blush, the plan includes some big challenges -- the most obvious being the call to develop software, an arena in which HP has rarely been a stellar player.
However, a glimpse under the covers reveals that the vision isn't quite as grand as it first appears. That always-on infrastructure is being targeted to customers in telecommunications, manufacturing, financial services and what HP calls e-service providers. While these organizations represent a significant market segment, HP nonetheless seems ready to narrow its historically very broad focus. And some of these market segments have been chosen at least as much by the will of the market as by the design of HP's management. For example, HP has mature security and encryption technology to offer the financial market, so that segment shows up on HP's list. One characteristic, however, is common to HP's intended markets: Each segment is likely to be willing -- and able -- to pay a premium for an always-on infrastructure.
A Three-Way Game
Regardless of segmentation, the battle for the enterprise market comes down to three players: Sun, HP and IBM. Sun has about 31 percent of the Unix server market; HP and IBM have 25 percent and 18 percent, respectively. Each company has strengths and weaknesses, but gaining market share in this arena will require that faults be thoroughly and quickly fixed.
Sun clearly grasps the Internet revolution; from the outset, its products have been at ground zero. Sun was the first vendor to harden its products for mission-critical reliability, and the existing infrastructure market understands and likes the company's offerings.
Software, at least at the application level, has been a challenge for Sun, which has addressed its historically weak position in applications through its control of Java and its partnership with Netscape. While the iPlanet alliance creates software that runs on a number of systems, Sun hardware is clearly the reference platform. And besides iPlanet, numerous third-party developers are busily creating products, mostly to run on Sun hardware.
On the downside, unlike IBM and HP, Sun lacks an extensive worldwide service organization and must rely chiefly on third-party consultants for integration. The company is also struggling to get its Ultra III architecture into production and risks falling behind on the performance curve. In addition, many consider the SPARC architecture inferior to that of IBM's Power or Intel's IA-64. Although Sun's OS and hardware comprise the system of choice for e-commerce, Sun lags behind IBM and HP in areas such as clustering and failover. Still, Sun ports Solaris to run on Intel hardware, so if Intel wins the performance game, Sun could build hardware based on Intel's chips.
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