HP: Better Than IBM?

Can HP become a credible rival to IBM?

One year after Hewlett-Packard shareholders approved the acquisition of Compaq Computer, HP CEO Carly Fiorina is pitching the company as a credible alternative to IBM. During the next few years, many customers will be making their choice of enterprise vendor between the companies.

Gaining size and a more competitive mix of products and services was a principal goal in joining the two companies. In servers, theres plenty of contrast. IBM presents a varied array of x86, IA-64 and Power4 mini and mainframe systems—but while IBM continues to say, "Have it your way," HPs roads all lead to the Itanium in the second half of this decade. Its a clear choice for IT buyers, and it will be interesting to see which story they find more appealing.

In PCs, HP is far ahead of IBM, which now makes only ThinkPads itself and outsources desktop manufacturing. But its not clear how important the location or owner of the PC factory is to customers. Whats important are product reliability and responsive customer service. Neither fares poorly here, but both are hard pressed by Dell.

IBM is stronger in software and services. In software, IBM offers Lotus, WebSphere and Tivoli applications and tools, while HP counters with OpenView and best-of-breed partners such as BEA. Again, its a clear choice: Customers who like their software to come from a single vendor will be attracted to IBM. Although HP has less of its own to offer, its partnership story might prove convincing to those who feel more secure dealing with an alliance of vendors.

In Unix, many observers would give HP an edge; in Linux, however, few companies can compare to IBM in commitment of money and resources.

IBMs vast service corps of Global Services and PwC Consulting is a formidable foe, but HP has been winning big services deals. HP must continue that streak and must turn it into a stream of actual earnings.

In the battle of "marketectures," HP unveiled Adaptive Enterprise, designed to counter IBMs on-demand and Suns N1 initiatives. All try to position each vendor as providing flexible, continuously available computing resources.

In terms of size, HP, at $72 billion in annual sales, is not far behind IBMs $81 billion. There is a big difference. IBM made $6.8 billion in profit during fiscal 2002, while HP-Compaq combined lost $948 million. Those results are reflected in the market capitalization of the two companies. IBM is about $150 billion, while HP is at about $50 billion.

Can HP overtake IBM? The initial layoff bloodletting and basic foundation work has taken place, but HP is not as far along as Fiorina reports. The company is still executing the merger, as shown by the reorganization of the Enterprise Systems Group earlier this month. Thats not to say that HP cant succeed—HP can overtake IBM—but the work of building the new company has only begun.

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