May 24, 2012
Why HP Financials Should Remain Relevant
File this article under News You Can Use. I'm about to make a case for why the quarterly reports of Hewlett-Packard -- a company posting more than $125 billion in annual sales -- should still matter to you. If your job is to plan IT resource deployment, like who's learning what skill or where investments go in 2013 and beyond, HP's reports remain relevant.
We've been dividing ourselves into two camps since late 2001: those leaving the 3000 and those remaining. For the ones who are leaving, or have a migration right behind them in the rear-view, HP's profile in 2012 is even more important than it was a decade ago. Hewlett-Packard is probably driving your technology and services choices. The success of adopting its products in Unix, Linux, servers or even the cloud gets reflected in HP sales numbers. And HP still announces strategies when it talks to securities analysts.
As an example, the CEO Meg Whitman told employees in a letter yesterday, prior to the quarterly results release, that this round of 27,000 layoffs is going to be different from layoffs of 2005. "Another difference from years past is what we plan to do with the savings," she said in her letter. "The majority of savings [via employee cutbacks] this time around will be invested in the business. We'll be investing to drive leadership in the three strategic pillars – cloud, security and information optimization."
HP drove its previous layoff savings right out to the shareholders, not the customers. As a continuing customer of HP products, these words of investing are finally those that you want to hear. Cloud has little to do with HP's consumer business. Same for security and information optimization. This is an enterprise play on a field where HP is way behind, by Whitman's own scoring.
Even though HP stock hit a 52-week low before her comments, today it's having a relatively good day. The investors just got told they won't see direct profit increases because of HP's changes, and its okay with them. Like you, the majority of them have got a long-term relationship with Hewlett-Packard. Of course if that's not true for you, then getting your homesteading choice reinforced makes the quarterly results relevant, too.The 3.5 percent rebound the stock's enjoying today is about finance, not company futures. "HP beats estimates on earnings," the headlines go, playing the forecasting card about expected profits -- instead of the downward trend since last year.
Whitman knows, like you do, that "Our business is still declining," in part because customers like homesteaders are not with HP anymore. And the migration segment of the 3000 populace has left HP-centric alternatives behind, in the majority. Whitman said HP still needs to "invest to drive R&D and innovation in our core businesses of servers, storage and networking." It's work that's undone, and now the company will be taking what's special about its Unix and delivering it to the Linux market, pretty much without reward.
The Gartner Group looked over the exit-Itanium Odyssey Project and found that it's going to level the sales playing field for Linux at HP. That's what happened to the HP 3000 at Hewlett-Packard back in the early 1990s. Eventually the product that had less in common with HP's innovation (read: MPEand IMAGE) and had to march uphill. The trend from the top managers in HP servers remains the same as it was: follow the sales. Gartner thinks Odyssey is good for HP -- to the extent it can stop the steep decline of the HP Unix business. But it's inevitable.
As these enhancements roll out, Gartner believes HP will be more inclined to market and sell Linux on an even playing field to Unix, which will add more market momentum to Linux and greater decline of Unix. As this decline occurs, HP will be able to delay migrations or reinforce HP-UX user loyalty by diverting its generally loyal base to a strong mission-critical alternative and viable replacement for Itanium. By accelerating the pace of x86 adoption for mission-critical workloads, HP will drive down the margins that it has traditionally enjoyed as a vendor of large-scale, non-x86 Unix servers. Although BCS only represents 10% of HP's server, storage and networking revenue, the margins are at a much higher proportion.
Those italics are ours, not Gartner's. With that language, any companies no longer doing business with HP can hear an echo of their chaos and trauma over the last 10 years. Although the HP 3000 represented a small part of the company's server revenue, its margins were at a much higher proportion. Now this kind of profitable business is ebbing away even more. HP's not going to chase PC business like it once did. (It's got a project in place now to examine the value of the Compaq brand it acquired in 2001.) But it's more than one annual buying cycle away from generating hope of innovation, much less a fresh value for companies who want integration -- or as HP likes to call it now, convergence.
You might have left HP behind years ago, but need to defend that decision as a homesteader. Or your choice going forward is the success of HP's strategy. Either position needs current information, the kind that can be tracked over time and pinned to a point of profits, sales and plans.
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