HP Focuses on Software, Storage

CEO Carly Fiorina tells analysts that the company needs to work harder at developing consistency, and says key areas of focus going forward will be the company's software and external RAID businesses, in addition to its PC line.

BOSTON—Hewlett-Packard Co. officials have completed the reorganization of the company, have their product portfolios in place and have developed strong roadmaps for those products. Now they have to execute on them.

That was the message delivered by Chairman and CEO Carly Fiorina and other top HP officials here today at the companys meeting with financial analysts.

"Five years ago, this was a company with a great sense of its past, but not a great sense of its future," Fiorina said in her opening statements. "We now are at the point where we have the right strategy, the right portfolio of products and were in the right markets.

"This is no longer about our potential. Its about executing and leveraging that potential."

The remaking of HP started with its May 2002 purchase of Compaq Computer Corp. The last major steps in the makeover occurred in May, when its enterprise server, storage, software and services were brought together to create the Technology Solutions Group, or TSG, marketing and sales were combined to make the Customer Solutions Group and HPs global operations and IT were brought under the same roof.

"Fundamentally, we have completed this picture," Fiorina said.

The moves were designed to meet customer demands for solutions rather than point products, and enable better leverage of on group by another, officials said. Throughout the four-hour meeting, HP officials spoke of the importance of creating a wide portfolio of products that can be sold together.

According to Ann Livermore, executive vice president of TSG, the companys profit margins improve dramatically when services and software are sold along with servers.

Fiorinas comments came after HP rebounded in the fourth quarter following a third quarter that saw glitches in an IT integration project, and problems with channel management in Europe resulted in a $208 million loss for the Enterprise Storage and Servers unit. In the fourth quarter, that unit posted a $107 million profit.

/zimages/6/28571.gifClick here to read about the management changes at HP following the third-quarter decline in its storage and server units.

Fiorina said the company needs to work harder at developing consistency. HP has missed projections in two of the last nine fiscal quarters, she said.

Going forward, one of the key areas of focus will be building up HPs software business, which Livermore said will be profitable by the end of fiscal year 2005. Right now, the software business—which includes the OpenView management software offerings—accounts for about 3 percent of the TSGs overall $30 billion in revenue. However, Livermore said, the $922 million in software revenue in fiscal year 2004 represented a 19 percent increase over the previous year.

The group also will focus on the external RAID business, which saw a 6 percent drop in revenue from 2003 and has contributed to the storage business disappointing showing, Livermore said.

One area that HP, of Palo Alto, Calif., will continue to focus on is the PC business, which is continuing its two-horse race with Dell Inc. Duane Zitzner, executive vice president of the Personal Systems Group, said PCs—particularly notebooks—continue to be a key product in the portfolio.

In referring to recent speculation that IBM is set to sell its PC business, Zitzner said such a move wouldnt make sense for HP, which saw revenue in this group grow 16 percent in 2004.

"Theres a lot of rhetoric in the market right now on whos in and whos out," he said. "I see this as a very profitable market for HP to participate in."

In response to an analysts question, Zitzner said his group is looking at how it would respond if IBM were to sell its PC division.

"Its going to create a lot of turmoil with IBM accounts," he said. "Its a great opportunity for us to go in and offer some stability."

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