August 19, 2011
HP: Innovator turned Dinosaur
Everyone working in the tech space these days must feel as though they are walking on thin ice. Seemingly from one day to the next, dramatic changes in strategic direction are taking place involving billions of dollars and impacting thousands of employees. One could argue that one side effect of the high-tech revolution is employment insecurity. And once again, all fingers point at Apple for triggering the latest dramatic event in the saga of "Leaders today, forgotten tomorrow."
So, is this the story of HP, historic innovator turning dinosaur? Or is this the story of HP, cracking through the shell and emerging as a newly focused entity?
HP's decision to discontinue operations for webOS devices has led to an onslaught of commentary and news, mainly critical, about the company's direction, plans, leadership. Every angle and strategic move over the past ten years has been discussed by journalists, analysts, techies, etc. [And clearly, I am unable to contain myself either.] The discontinuation of the TouchPad after less than two months of commercial availability comes surprisingly fast. Just last year, HP acquired Palm for $1.2 billion. The move even then was not considered smart by analysts who at the time thought HP paid too much for an already outdated technology with little to no competitive advantage against Apple's iPhone and iPad. At the time of launch, HP's commitment seemed hesitant at best with a lack of applications to support and build an "ecosystem". But what changed in two months that led to the decision to terminate the business that was not evident during the development of the actual platform?
The stated reasons for the potential divestiture of the consumer business (largely PC) are the low margins, and looking at the recent earnings announcement, who can argue with the decision to shift resources from a 5.9% margin business to one with margins of 13% (Enterprise, Servers, Storage, and Networking - ESSN)? Ironically, at the time the Palm acquisition was justified by HP as providing "the ideal platform to expand HP's mobility strategy" and enhancing "HP's ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets."
No one can also argue against the intensity felt by tablet suppliers trying to compete against Apple. The executive decision to pull the plug on a venture after making the kind of investments HP has made over the past years is not an easy one. It takes guts to make that call, whether right or wrong. What is concerning, however, and will without question bear long-term consequences for HP and its reputation, is the lack of time and commitment that was given to the TouchPad.
The move will, independent of which sector HP will focus on going forward, lead to erosion of customer confidence in HP and the firm's commitment to its technology and products. The company's competencies may no longer be in the fast-paced consumer electronics space. The new focus on the ESSN group will bring longer sales and development cycles that may be more suitable for the tech giant. Nonetheless, customer confidence in the company will suffer from the latest move. And that… in my opinion… is the real danger!
The movement in share price clearly demonstrated uncertainty about the company's future. The last ten years of HP's history shows a record of a seemingly inconsistent acquisition patterns, changes in strategic direction, turmoil at the top of the organization leading to turnover in leadership. There is hesitation to believe in the company's direction after yet another twist and turn.
So now with the $10.2 billion acquisition of Autonomy, is HP ready to tackle the next decade and emerge as a more focused entity in a space where it can provide innovation? Even with a divestiture of the Personal Systems Group, there appear to remain more pieces that do not to fit into the new vision and direction of CEO Leo Apotheker, which has been defined as "expand[ing] the company into software and services that help customers deliver computing over the Internet, via the so-called cloud." Maybe the financial services piece is next to go? Strong growth, but after the shedding the PSG group, the only remaining business unit with single-digit margins.
The 300K+ employees of HP will remain uneasy for a while. Many may find themselves laid off. I have known many HP employees and despite the controversy about pay cuts, bonus eliminations, and the inconsistency in leadership and direction over the past years, they always struck me as a loyal core.
So what will the future hold for HP? Maybe...if evolution is kind...it will give this dinosaur some wings to soar to new heights…