Hurd: HP Consolidation Project Moving Along

Hewlett-Packard’s internal data center consolidation initiative is coming together.

In a Feb. 19 call with analysts following HP’s first-quarter financial results, President and CEO Mark Hurd said the company is making progress in its push to reduce the number of its data centers from 85 worldwide to six centers in the United States, a move that could save the company about $1 billion in the next year.

HP, one of the largest IT vendors in the world, first announced that it would undergo a massive data center consolidation project in 2006. The plan not only called for saving the company money, but it would serve as a model for customers looking to consolidate and simplify their own IT infrastructures.

While HP executives have offered sporadic updates on the program, Hurd took some time during the call with analysts to offer specifics on the initiative. For example, Hurd said that when HP first announced the project, the company used about 6,000 different applications within its data centers.

Now, HP has reduced the number of applications to about 3,000. Application consolidation, Hurd said, is a key to modernizing the technology HP uses inside its data centers, which will eventually allow its engineers to reduce the amount of physical hardware as well.

In one case, Hurd said the company used 75 different consumer report applications for each of the countries where HP has a business presence. The company now uses one application throughout the company.

“We have now consolidated those into one application-one application that now supports our entire consumer support across the entire company, which means that IT can do one modification to our code base [and] drop it down one time,” he said. “Before [reducing the number of applications], we had to do 75 different modifications to be able to get that done. That not only lowers our cost, but it increases our speed and makes us more nimble and gives us a better platform to run the company.”

During the call, Hurd said the company is working to complete the consolidation initiative by the end of the company’s 2008 fiscal year on Oct. 31. Cathie Lesjak, HP’s chief financial officer, said the company plans to save about $1 billion in the 2009 fiscal year.

Keeping Up with Competitors

Besides applications, HP plans to use more of its own blade servers-both x86 and Itanium-based systems-to help reduce the physical infrastructure, as well as HP’s own cooling and management software. All of these different technologies stem from the company’s Adaptive Infrastructure program.

David Cearley, an analyst with Gartner, said HP’s data center consolidation program is not only an important step for company as it looks to modernize its data center and streamline its operations, but it also gives the company a stage to demonstrate its ability to customers.

Cearley said many vendors, including Sun Microsystems and IBM, have begun similar projects and it’s important for HP to keep up with its competitors.

“This type of project helps HP build its own expertise and it allows them to leverage that expertise with its clients and offer them advice on how to go through a similar exercise,” he said.

The types of savings that a large consolidation project might bring to HP might also explain the company’s first quarter financial numbers, which it released Feb. 19. The company’s net income for the quarter that ended Jan. 31 increased to $2.13 billion. For the same time period last year, the company posted income of $1.55 billion.

HP’s revenues increased more than 13 percent, from $25.1 billion last year to $28.5 billion. Unlike other major vendors, such as Cisco Systems and Intel, which cautioned investors about the next few months, HP raised its outlook for the next few months. Although Hurd did caution that the PC market would not be as “robust” as it has been in the past few quarters.

Hurd added that HP was helped along by cost reductions and market share gains. Cearley also said that because 69 percent of the company’s revenues come from outside the United States, HP might also be insulated from the sluggish U.S. economy.