HP Discover Follows Tough Year--But Is Perception Worse Than Reality?

Hewlett-Packard's annual event begins today. Will HP Discover be overshadowed by a year full of leadership shuffles, downsizing and more? Or are things better at the vendor than they seem? We asked some experts to weigh in.

June 4, 2012

5 Min Read
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LAS VEGAS--Hewlett-Packard's annual event, HP Discover, kicks off today on the heels of a tumultuous year: The world's largest IT vendor is facing its biggest downsizing ever, following strategic flip-flops, management musical chairs and concerns about its future.

Less than two weeks ago, the company announced a multiyear restructuring plan to shave between $3 billion to $3.5 billion in expenses by fiscal year 2014, including reducing its payroll by approximately 27,000 employees, or 8% of its workforce. While HP's latest financial results showed better earnings per share than expected, there were a number of red flags, including a 10% decline in printing and imaging revenue. PC unit revenue rose only 0.4%.

Last year wasn't much better for the vendor: A year ago, the company axed 29-year vet Ann Livermore, head of HP Enterprise Services, as well as Pete Bocian, executive VP and chief administrative officer. CEO Leo Apotheker was shown the door a month after he announced that the company was considering spinning off its PC business, which accounts for almost a third of its total revenues. He was replaced by former eBay CEO Meg Whitman, who nixed the proposal, but several customer surveys indicated the damage was already done.

Analysts surveyed by Network Computing had an array of opinions on HP's current footing, and its future.

David Vellante, founder and consulting analyst at Wikibon, says he believes the situation is often overstated, and that HP is actually in better shape than most people realize. "I'm pro-HP, like a lot of people, because it has such a great history," he explains. "HP is a Silicon Valley icon, and the birthplace of Silicon Valley essentially occurred in a garage in Palo Alto. HP has a trusted brand and customers are generally loyal to HP."

However, Vellante adds, there is no shortage of areas of concern, including rationalizing HP's strategy. "WebOS was a phenomenal opportunity that HP fumbled," he says. "The Autonomy acquisition, in my opinion, was not the best move for the company because HP sales teams aren't well versed at selling enterprise software--I would have much rather seen sets of smaller acquisitions that are more strategic or a mega-acquisition like Citrix--which, of course, would have been pricier. I think Autonomy was a desperate move by Apotheker to show more substantial software assets. The Mike Lynch firing was another debacle, but I think long term is good for HP."

Rob Enderle, principal analyst at Enderle Group, agrees that the reality for HP is likely much better than the perception--but that's not to say there isn't a serious problem, which he lays at the feet of the company's boards of directors. "Actually, if you think about it, every CEO they have had over the last decade with the exception of Whitman was fired, and in all cases the firing was a symptom of a bad board," he explains. "And in each case, the bad board seemed to get replaced by a new one that had a different, but equally bad, set of problems. Fiorina and Hurd were very poorly managed, and Apotheker wasn't qualified for the job."

Enderle says in the first two instances the core issue was that the CEO was also the chairman of the board, making it nearly impossible for the board to manage the CEO effectively. "In the third, a brand-new and panicked board made a bad decision, and Whitman was the rushed correction. Right now, the board layout is correct: Whitman--for an umbrella company--has the right background--more Bain than eBay--but she now has to deal with what is left from a series of dysfunctional leadership teams."

Next: Analysts Weigh In On HP Storage, Perception IssuesFrom a storage perspective, Arun Taneja, founder and consulting analyst at Taneja Group, says HP is in good shape moving forward. He says both the 3PAR and LeftHand Networks-based product lines continue to gain market share, especially in VM environments, and is probably holding its own with the XP product line that is OEMed from HDS. "Architecturally, the 3PAR and LHN-based products are superior to their main competitor. The MSA and EVA will probably need to be replaced in the near future, but a lot of their functionality is available in the LHN product line," Taneja says. "So at the array level, I think HP is fine at the moment."

Mark Peters, senior analyst at Enterprise Strategy Group Inc., offered a tongue-in-cheek perspective, saying HP has a "huge" perception issue on its hands, and is seen to be "horribly positioned" right now.

"Here's the thing, however: While HP seems to be lurching from one corporate disaster to another--and clearly, all its competitors are doing everything to encourage the 'blood in the water' perception--the enterprise world doesn't move that fast," he says. "HP remains fundamentally strong, with an improving enterprise product set, plenty of committed customers and a capable management team. If HP can get--and keep--its act together, I think it will remain both relevant and dangerous. No guarantees of course, but I suspect we're currently judging a battle and not a full war. The 'Historical Perspective' of this period will be fascinating."

The turmoil caused by the sort of layoffs and reorganization HP is going through tends to be short-lived, suggests Charles King, principal analyst at Pund-IT Research. "There are obvious problems in HP enterprise product organizations, especially BCS [Business Critical Systems--the Itanium server group] that could be affected by the reorg, but I doubt that layoffs will greatly improve the situation," he says. "Overall, HP will probably decide Discover has succeeded if it comes away from Las Vegas having quelled most of the concerns of major customers, developers and partners."

Get more analyst advice for HP in part 2, "Analysts: HP Must Communicate Strategy at HP Discover, Then Execute. Learn more about Research: 2012 State of the Data Center by subscribing to Network Computing Pro Reports (free, registration required).

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