March 29, 2024

Bits Blog: Hewlett-Packard’s Look-East Strategy

No one is giving Hewlett-Packard’s chief executive, Léo Apotheker, high marks for the new strategy he presented last week. It seemed a flip from the corporate game plan Mr. Apotheker had championed only a few months earlier. H.P. is paying a high price for a business software company. And it may have undermined the value of its personal computer business by saying it was considering selling it off.

But it’s not hard to see the trends behind the revised thinking at the Silicon Valley headquarters of H.P., as the company retreats from PCs to focus more on selling more profitable data-serving computers and specialized software to corporations and governments — the so-called enterprise business.

Yet H.P.’s strategy also has a familiar look. It’s I.B.M.’s strategy, but embarked upon years later.

A fresh piece of evidence for the logic of an enterprise-first strategy came Tuesday evening. IDC reported that server computer shipments in the second quarter of 2011 increased 8.5 percent and revenue rose 17.9 percent from the year-earlier quarter. By contrast, PC shipments for the quarter inched up 2.6 percent in the quarter, while revenue rose 6 percent.

Companies are investing in servers and data-analysis software to help them handle and make sense of the rising tide of data, generated inside the company and outside — customers, Web traffic, social network communications, and other sources.

I.B.M., headquartered in Armonk, N.Y., sold off its PC business in 2005 to a Chinese company, Lenovo. But I.B.M. did not tip its hand well in advance of the sale, as H.P. felt compelled to do. For months, Samuel J. Palmisano, I.B.M.’s chief, was negotiating with Lenovo and visiting senior government officials in Beijing to get their assent. Word of the deal leaked out just days before I.B.M. announced the sale to Lenovo in December 2004.

The sell-off carried a lot of symbolic freight, for I.B.M. and the PC industry. When it entered the market in 1981, I.B.M. brought the personal computer into the mainstream, endorsing what many still viewed as a plaything for hobbyists.

For years, I.B.M. executives had said — as H.P. executives have — that even if not a big money maker, the PC business was “strategic,” pulling along sales of other hardware, software and services. But Mr. Palmisano made the unsentimental decision to shed the business and invest money and management energy elsewhere.

H.P.’s purchase of Autonomy for $10 billion looks pricey, but the British company is a leading maker of sophisticated data-analysis software. Once again, H.P. is following I.B.M.’s lead. Most of the major software companies have bought specialist makers of software that helps corporations manage information — known as “business intelligence” or “data-analytics” software.

But I.B.M. has been the most aggressive over several years, spending $14 billion on 25 companies that focus on data analytics. I.B.M. has added industry experts in services and researchers to the business, which now employs 8,000 consultants and 200 mathematicians. I.B.M. said recently it expects its analytics business to grow to $16 billion by 2015.

Before I.B.M. sold its PC business and invested heavily in software and services, Big Blue and H.P. were much more comparable companies than they are today. The difference can be seen in the numbers — the data, if you will.

Today, I.B.M.’s profit margins are about double H.P.’s margins. And the stock market value of I.B.M., at $198 billion, is nearly four times H.P.’s $52 billion.

In the last few days, there have been market speculation that H.P. is sufficiently weakened to be a takeover target itself. Oracle has been mentioned as the most likely bidder.

In a research note on Wednesday, Dave Novosel, an analyst at Gimme Credit, said that the only H.P. business that would really interest Oracle would be H.P.’s server computer division. His research note was titled, “Oracle Has Better Options.”

I.B.M. stands on the sidelines, enjoying its competitive advantage. Years ago, it made the difficult strategic choices H.P. is grappling with today.

Article source: http://feeds.nytimes.com/click.phdo?i=d73e5dec344b4ed20765c5713ec564ea

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