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Technology Stocks : Hewlett-Packard (HPQ) -- Ignore unavailable to you. Want to Upgrade?

To: The Duke of URL© who wrote (2694)	3/10/2003 3:59:55 PM
From: PCSS	Read Replies (3) \| Respond to of 4345

HP goes after enterprise computing crown By Simon London in San Francisco Last Update:3:30 PM ET March 10, 2003 Peter Blackmore, a phlegmatic 55-year-old Englishman, occupies the hottest seat in Silicon Valley. The executive vice-president of Hewlett-Packard's $16bn enterprise systems division must turn the lossmaking arm into the premier purveyor of corporate computing. Success or failure will determine not only his career trajectory but that of Carly Fiorina, HP's chief executive. Last year's $19bn takeover of Compaq Computer was designed to give HP the muscle to take on IBM, the world's largest computer company, in the battle for corporate information technology dollars. It is a management challenge of the highest order. In addition to rationalising product lines ranging across computer servers, software and storage, Mr Blackmore will oversee the most important technology shift in HP's history: the transition from home-grown microprocessors to computers based on Itanium, the chip architecture developed jointly with Intel. Since the Compaq deal closed in May, Mr Blackmore has been melding HP and Compaq employees into a 34,000-strong business unit. This has involved the rationalisation of countless product lines and 7,000 job losses. Annualised cost savings from these measures are running at $1bn, reducing the flow of red ink. In the three months to July 2002, the first quarter after the Compaq deal closed, HP's enterprise systems group lost $322m. For the latest quarter, to January, losses were down to $83m. "We have met every synergy target right the way through," Mr Blackmore says. However, with post-merger integration now largely complete, success from here on will require growth. While HP has hit earnings targets since the Compaq deal, revenues have undershot Wall Street expectations. The shares fell 15 per cent following the most recent results as analysts fretted about a $600m shortfall - much of it attributed to weak sales in the enterprise systems group. Mr Blackmore explains: "If you take our performance through November and December it was very solid. But January was a very weak month for us. And, because companies like ours get 40 per cent of revenues in the last month of the quarter, it had an impact." His focus this quarter will be kick-starting sales growth, particularly in the US. This is partly a task of driving sales people to sell more but also of coming up with products compelling enough to steal business from its main rivals, IBM and Sun Microsystems. The Compaq deal made HP the biggest seller of industry standard servers - those running Microsoft's Windows on Intel microprocessors. Similarly, the combination of HP's Superdome product line with Compaq's Alpha and Nonstop servers has given HP about 30 per cent of the Unix server market, roughly in line with IBM and Sun. In the rapidly expanding market for Linux servers, the operating system developed by the open-source software community, HP is number one. The possible weakness is in software. Before buying Compaq, HP tried to break into the lucrative market for "middleware" - software that bridges the gap between computer operating systems and applications such as e-mail - by paying $470m for Bluestone, a software company. But last summer it became clear HP was not going to catch IBM, BEA Software or Sun, and the middleware operation was closed. Mr Blackmore bristles at the suggestion that HP has opted for a "software light" strategy: "While middleware has been hot over the last three years, it is becoming more of an appliance [with little added value]. We made a hard call and decided to put our dollars where we can add value." The area in which HP hopes to add value is the emerging market for software that helps companies manage complex computer systems. This, says Mr Blackmore, is the coming battleground for suppliers of corporate IT. A more pressing concern, however, is the launch in September of HP's first line of Itanium-based computers. While cheap Windows servers almost all run on Intel microprocessors, Unix servers are built around any number of proprietary chips. HP is committed to supporting its Alpha and Nonstop machines, which each run on different microprocessors, for several years but Mr Blackmore's challenge is to persuade customers to migrate to Itanium servers, enabling it to scale down the cost of supporting three chip architectures. Uncertainties abound over performance levels and software development, which need to be strong if Itanium is to attract enough customers to become industry standard and if HP is not to lose sales to IBM and Sun. But Mr Blackmore is unruffled: "Today there is no internal debate [about Itanium]. The engineering community is excited about the performance. The software community is really drawn to it. It will be a good launch in September. Your proof-point will come a year after that. This is going to change the industry."