Architecture Toolbelt Emerges for 3000s
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CloudSystem fuels HP's exit from systems

CloudSystemSlide Fifty percent higher and 100 million more points of integration: These are the numbers Hewlett-Packard used to get the industry's attention in a presentation yesterday. Even though HP remains in the systems business, it will define system as "software and networking" over the next four years. HP calls its new strategy CloudSystem. But the fact that the plan was unveiled about a week before HP's annual shareholder meeting might show how much weight the strategy carries in HP's top offices.

First, the 50. HP announced it will be increasing its dividend from 8 cents a share to 12 cents. The 50 percent increase in dividend returns might help keep skittish institutional shareholders in HP's investment club. Many technology companies don't pay dividends on stock anymore. The investors would be happier with a company trading at IBM's record levels, or at Apple's, of course. But since HP can't do that overnight, it can at least raise dividends. (Investors sold the stock down 56 cents in day-after trading, despite the dividend boost.)

Then, there's that 100 million. It's the number of computing devices HP plans to ship each year which can use webOS, the operating system built by Palm which HP owns. HP said it will be shipping desktops and laptops, phones and tablets, as well as printers by 2012 ready for webOS. "HP ships two PCs and two printers a second. That gives us an enormous install base that is going to grow," said CEO Leo Apotheker. "The fact is, people like working on PCs and that isn't going to go away." He added that HP won't be dumping Windows in favor of webOS. But the company is hawking its shiny new OS.

The tech outlook for webOS is cheery, but its market prospects are cloudy indeed. That's where CloudSystem hopes to create a compelling strategy for the Number 1 vendor which could use a thunderbolt of a software leap. HP wants to leverage enterprise demand in building a webOS world.

That sound you just heard was HP pushing its hardware into the back seat in favor of driving with its software and web services. Sure, there's always going to be millions of HP laptops and printers shipping. But there will always be enduring relations with customers who are tethered to a vendor via software. After all, the MPE/iX OS still holds HP 3000s in place at thousands of companies, more than seven years after Heweltt-Packard ended its manufacturing of the hardware. The newest HP operating software is now the best candidate to double company profits by 2014.

MB Foster's founder Birket Foster, who pointed us to the webcast of the summit, said the CloudSystem strategy is still building its parts needed to play a role for remaining 3000 migration candidates. Apps, the crucial element in webOS, are still on the way.

"This is a new infrastructure," he said. "You're going to have to wait for the cloud applications to actually show up. Larger companies will be able to take advantage of it because they already have staff who know about things like Java. The small and medium enterprises will have to wait for the finished apps to be there. There's some assembly required right now, and data integration is not included yet."

DonatelliSummit HP's fiscal leader Cathie Lesjak predicted profits of $7 a share in four years' time. The path to such an increase will get charted as HP transforms its business from boxes and printers to a world linked over networks of a solutions lab, maps to cloud provisioning and services to get computing to the cloud. Dick Donatelli, leader of HP's Enterprise Solutions group, said the vendor's got a unique offering.

"CloudSystem is a unique combination of the hardware, the software, fully wrapped in services based on our experiences," Donatelli said at yesterday's summit. "It makes CloudShare unique to anything else that's in the industry today."

WinningStrategy HP will offer an open Cloud Marketplace for secure cloud services. HP says its services will span private clouds, hybrid clouds and "the public cloud," Donatelli said. "We'll enable our current enterprise customers... to get to the cloud through the full host of services that we offer. In putting it together, we're helping everybody on the cloud."

His last phrase is the tag-line for HP's new marketing campaign built around webOS devices, Everybody On: seamless, secure context-aware experiences for a connected world.

You don't get noticed in today's marketplace by shipping a lot of servers, except by the customers and experts who track servers. Sales numbers rise and fall and a lead can get leapfrogged in a single quarter. Industry momentum comes from broad market notice, something that Apple's iOS has earned and Android desires. Apple estimates that more than 160 million devices around the world use iOS. Android's number grows closer to that total with every quarter. These devices are used in both business and personal settings. HP is banking on a blend of that computing use. Smartphones and tablets have become the truest examples of "personal computing," which is what PC stood for back at the inception of the term.

IBM and the Windows empire hijacked PC by the late '80s to equate it with Intel chips and Microsoft's OS. But now Apple has blazed a trail away from servers and systems like laptops. Mobility is most important to win mindshare and retain market share. Apple has proved that putting a phone in a pocket or a tablet into a briefcase will tear down the walls that traditional IT erected for protection. HP needed an equivalent of iOS or Android, and it is betting big on webOS. Todd Bradley, HP's head of Personal Systems, ran Palm before joining HP. Bradley spent 20 minutes out of yesterday's summit explaining how webOS is the software skeleton of HP CloudSystem.

"WebOS will deliver a differentiated customer experience," Bradley said. "What really matters is how we use great technology to make great products. We've accomplished this with webOS because of the unique architecture that it permits." When every vendor selling a PC solution sells the same components (Intel, ARM, AMD chips, or Samsung processing), integration and pricing don't establish a unique value to retain customers. You need the advanced architecture that only an OS can bring. This kind of strategy made the HP 3000 a great product for Hewlett-Packard while it believed in software.

Some analysts who commented after the summit were mostly impressed with what was billed as Apotheker's debut in strategy. A few who'd criticized HP for cloudy forecasts in recent reports said HP did what it needed to do by forecasting profits in 2014.

Skeptics say HP is still in a transition mode under Apotheker. Wells Fargo analyst Jason Maynard said in his coverage that "The HP pitch centered on the notion that the company is levered to the mega-trends of mobility and cloud computing. HP gave the 30K-foot view, and didn't include much granular product or distribution detail. For the most part, the new strategy represented a repackaging of existing technology."

But Cowen and Company's Peter Goldmacher countered that it was wise for HP to offer few details in the strategy rollout, saying in a note, "We view this lack of info as a thoughtful exercise in restraint. HP is starting down a path that will take years to unfold, and too many explicit details would unnecessarily limit the company's options."