HP Scrambles for Footing with AlphaServers

The company moves to revive its lagging advanced-server business with initiatives to transition its customers from Alpha and PA-RISC.

Hewlett-Packard Co., while moving swiftly forward with many of its business lines since its historic acquisition of Compaq Computer Corp. two years ago, is scrambling to gain footing with one unit that ships a legacy Compaq product, Alpha-based servers.

While overall revenues for the Palo Alto, Calif., company grew 9 percent in its third fiscal quarter ended July 31, sales for its Business Critical Systems unit, which includes Alpha- and PA-RISC-based servers, declined 8 percent, said HP Chairman and CEO Carly Fiorina, who announced the financial results in a conference call with analysts and the media last Thursday.

The news shook the senior ranks at HP, which views such high-margin servers as entry points for a host of related peripheral products and services. Issuing its earnings report a week earlier than expected, the company announced a third-quarter net of $586 million, or 19 cents per share, missing analysts estimates of 31 cents per share.

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"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable performance in Enterprise Servers and Storage. Here, execution issues cost us and we are therefore making immediate management changes," Fiorina said in a conference call. "With these changes, we expect our server and storage business to return to profitability in the fourth quarter."

Several hours later, Fiorina announced an overhaul of the management of the companys Customer Solutions Group, a unified sales force responsible for all accounts. As part of the reorganization, longtime Compaq executive Peter Blackmore was ousted as executive vice president of CSG and replaced by another former Compaq exec, Michael Winkler, who retains his duties as HPs chief marketing officer. Jack Novia, who was senior vice president and general manager of the Technology Solutions Group, replaced Jim Milton as senior vice president and managing director for the Americas region of CSG.

But these moves are only the latest to try to revive HPs enterprise server business. In May, HP folded its enterprise systems and storage under the same umbrella as its services and software, calling it the Technology Solutions Group and putting veteran Ann Livermore in charge.

Under the direction of Livermore, the new divisions executive vice president, HP is working to turn the tide by bolstering initiatives to transition from Alpha and PA-RISC and standardize its high-end systems on Intel Corp.s 64-bit Itanium architecture and find synergies among its wide range of products.

"Were already seeing several benefits in our strategy to bring to customers solutions that are more integrated, such as servers with storage attached or servers with customer support attached," Livermore said.

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