HP Counts on Servers, Software and Services

By John G. Spooner  |  Posted 2005-12-13

HP Counts on Servers, Software and Services

Hewlett-Packard Co. says its getting down to business.

Senior executives from the Palo Alto, Calif., computer giant, including its recently-appointed CEO, Mark Hurd, converged in New York on Tuesday to lay out the companys plans for its fiscal year 2006 and beyond for financial analysts.

Hurd, speaking to an audience of financial analysts, said it aims to move forward from its rocky recent past in part by taking a dose of its own medicine.

As part of a strategy to continue lowering operating costs—last July the company said it would cut 14,500 jobs—HP will roll out a new internal information technology infrastructure, which he said could cut costs in part by automating many functions, serve HP with better customer data through improved information-mining capabilities and also stand as a model of the capabilities it can offer corporate clients.

Overall, HPs plans focus on more tightly integrating its hardware, software and services. By doing so, HP believes it can latch on to the meat of a trend whereby it said companies are moving away from mainframes toward corporate data centers based on less expensive servers.

It also has designs on high-end corporate printing and it aims to cement its position in the personal computing space by offering businesses lightweight notebooks and handhelds that can stay constantly connected by tapping wireless networks, including widely available cellular data networks.

HP hones management tools. Click here to read more.

Together, the company believes the three areas of focus are its ticket to future growth.

"These market trends are gong to happen with or without HP," Hurd said. However, "I believe they do play to our strengths."

Hurd, who was appointed as HPs CEO in March, also has the job of reinvigorating HPs employees.

Hurd spoke frankly about his first few months on the job on Tuesday. He characterized HP as an inconsistent performer and said he gave the company mixed grades at first.

Aside from its financial ups and downs, it had good products, well-known brands and loyal customers, when he started, Hurd said.

But customers told him they felt it was hard to do business with the company, due to a lack of accountability in some areas and slow decision making, he said.

Although he added that both HPs employees and its customers wanted the company to succeed.

"While I found [employee] morale to be mixed, I found something that I didnt expect: a company with people who wanted to improve the company," he said. "People who wanted to go win."

Indeed, despite continued attacks by rivals such as Dell Inc., IBM and Sun Microsystems Inc., HP has made progress in several key areas including its PC business, righting its storage systems product line and bringing its software business to profitability in the last quarter, HP executives said.

HP CFO Bob Wayman, also at the meeting, forecast that HP would turn in revenue of between $89.5 billion to $91 billion for its fiscal 2006 year, which a report by Reuters said exceeded analysts average estimates.

Click here to read more about CEO Mark Hurds arrival at HP.

Wayman also predicted that HPs revenue would increase by between four and six percent during its fiscal 2007. HPs fiscal year ends in October.

Going forward, HP will seek to devise far tighter relationships between its hardware, such as servers and printers, its software for managing them and the services it offers.

Thats because, not unlike what HP is trying itself to do, most corporations are trying to take down the costs of their IT infrastructures, Hurd said.

Hardware can help to some extent as machines based on Intel Corp. or Advanced Micro Devices Inc.—both of which HP uses in its PCs and servers—processors are relatively inexpensive.

Next Page: Data centers to become more automated.

Data Centers to Become

More Automated">

However, Hurd says HP envisions a much more automated data center environment, which can dynamically allocate computing power and storage space using virtualization and other techniques, running on top of that hardware.

"Its likely that instead of having a lot of humans running it, I [as a customer] want to have a seven-by-twenty-four, lights out computing environment thats monitored and controlled remotely," Hurd said.

"All of that is going to have to be managed, controlled—it will have to be reliable, secure and integrated with management software."

HP aims to offer companies a menu of hardware, software and the services to install and maintain such a data center and could even manage the operation for a customer, depending on their needs, he said.

"This trend isnt going to slow down," he said. "Its going to keep gaining momentum. The long run opportunity is to eliminate the requirement for that [human] labor. The way you do that is by automating those processes."

Anne Livermore, executive vice president of the companys Technology Solutions Group, which encompasses its servers, storage and software business, said that the company would work to cut the number of IT techs that run a data center from about one per 20 servers to about one per 200 servers.

Similarly, the company said it would help reduce the number of people needed to manage storage systems using its management and automation software, as well as services offerings.

"Were positioned well for the future as we look at the future…but theres also a lot of stuff we can sell today that will help customers start taking these steps," Livermore said, referring to the companys latest storage products and new servers.

Of course, corporate storage has grown into more than just holding on to data in case it might be needed, she said. HP must also help customers put their data to use by helping index and retrieve it.

Click here to read about HPs push for restructuring.

"So were investing in storage software to help with these parts of the solution," Livermore said. "Well continue to invest both organically and inorganically in the storage space."

HP believes its in a particularly good spot with its server line—it claims the number one spot in servers and ships a ProLiant server every 14 seconds—but it will be spending more and more time focused on revenue share, which translates into selling more expensive machines, Livermore said, and not necessarily shipping the most units.

To that end, it will continue focusing on areas such as blade servers, where it will also expand its desktop blade offering and introducing blade workstations, executives said,

HP will also continue offering Intels Itanium chip in high-end servers such as its Integrity line.

Click here to read more about HPs Itanium servers.

"Were fully committed, as is Intel, to this marketplace. Were pleased with the progress [of Itanium servers] and youll see us continue as we move into FY06 [fiscal year 2006] to be aggressive," she said.

HPs Personal Systems Group, its PC arm, will focus on making notebooks both easier to carry and more connected, said Todd Bradley, its executive vice president.

"Integrated broadband will be added," he said. Also, "Youll see us look at form factors that are both slim and light and larger and more powerful as we bring workstation capabilities down into the notebook arena."

HP will offer seven new notebook products in the first half of 2006, he said, many of which will combine Wi-Fi, wireless broadband and greater portability.

When it comes to printers, HPs cash cow, the company aims to capture more corporate business by offering multifunction devices that can replace copiers, continuing to push relatively inexpensive color laser printers and even pursuing large industrial printing systems, said Vyomesh Joshi, executive vice president of the companys Imaging and Printing Group.

"HP is the only company has all the technology and those solutions with which we can go after that aggressively…printers, supplies and services," Joshi said.

Each system, whether its a color printer or a large industrial system for printing mail, an area where HP would more likely license its technology, brings additional revenue thanks to its associated supplies businesses.

Moreover, HP can also attach services to the products it sells, he said.

The company will move to executive on its new plan in coming weeks and months, Hurd said.

Ultimately, "You man not always like what we say," Hurd said to the analysts. "But well go do what we say. Well work extremely hard to deliver on the commitments we make, both inside the company and outside the company."

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