Its Time for Tech Firms to Bet on Growth

Theres a joke going around that our lives have become so boring that weve taken up watching people play cards on TV. In fact, one of TVs latest phenomenons, all-star and celebrity poker, has joined reality TV as our latest diversion.

Not so amusing is that observing the IT industry has become something like watching poker, except that the stakes are much higher and the players arent as good. Weve seen too many tech companies betting large on mediocre hands, especially lately. You can see it in the markets as tech firms struggle to keep their stock price above water. The IT industry seems like its sleepwalking its way through the fall.

A lot has been promised in the way of a tech recovery, but its clear corporate America is not buying—or spending, either. Industry leaders have been offering too few innovations and too many marginal upgrades—at not-so-marginal prices. Meanwhile, a lot of vitality is being sapped from the industry as a whole by offshoring.

Its time for industry leaders to put their cards on the table. At Hewlett-Packard, for instance, that means coming clean on the state of HP "PCM"—thats Post Compaq Merger. To recap, in May HP CEO Carly Fiorina announced that HP was so confident about growth that the company raised its second-half outlook. Only three months later, Fiorina lowered the outlook in reporting lower-than-expected third-quarter earnings. Whoops.

It also came to light that poor execution in HPs Enterprise Storage Group, due to a faulty SAP migration, cost the company about $400 million in revenue. Earlier this month, speaking before a Bank of America securities conference, Fiorina said the problems are now fixed. But the pressure is on the company to deliver in an enterprise computing market that is not investing heavily in large systems. The recent, renewed rumblings that HP should spin off its lucrative printer and digital imaging business as a separate company isnt such a bad idea. Given a choice, HP shareholders might agree.

At Microsoft, the implications of the "Longhorn" delays announced this summer are still sinking in. WinFS, the crown jewel of the new platform, is out; "Avalon" may be next. Despite the cuts, users still will have to wait till 2006 before the upgrade, which is looking more and more like it will be more like XP SP2, part 2. The opportunity has never been better for competitors, yet few challengers are prepared to strike. Linux and open-source options may be ready to step in, but as we reported last week, some customers feel Linux is just not ready, and theyre switching back to Windows.

Over at Sun, although the brain trust is sincerely trying to get the message down, its still muddled. Sun is alternately a Solaris/SPARC company, an x86 and commodity hardware company, a Linux company, an open-source company, and a Java company. Customers are wishing that the real Sun would please stand up.

Intel, another industry pillar, has also been suffering this year, as a result of too much emphasis on computer chips and not enough on mobile chips and devices. HP delivered a blow last week when it announced it is discontinuing its Itanium-based workstations, the latest problem with the 10-year-old chip initiative. Meanwhile, Advanced Micro Devices is gaining traction as the low-cost processor maker of choice.

Who else? I could go on, but its clear theres a pattern here. Tech users have responded to the changing environment since the end of the dot-com boom by cutting costs, establishing ROI benchmarks and shifting costs to outsourcers. Tech manufacturers, however, have not. They are still running the same basic business models theyve always run, scratching for any small or near-term growth they can get but missing, or not communicating to customers, the long-term solution.

The bet-the-company scenario has been played many times before by these and other technology leaders. But they might have to try it again unless they are satisfied with slow, single-digit growth. They may have to take some risks—real risks. If they do, that may actually be fun to watch.

News Editor Scot Petersen can be reached at scot_petersen@ziffdavis.com.

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