HP Needs Clear Direction

When Hewlett-Packard announced its decision to discontinue its Itanium workstation, company leaders were quick to reassure customers by stating that “HP continues its commitment to deliver on the road map for Integrity servers.” Yet you could hardly blame customers if they were a little skeptical. The Itanium workstation debacle is just the latest in a string of lackluster moves by HP management.

Executives have spent the last few weeks trying to assure customers and investors that the companys troubles are behind it, even as internal problems surfaced. Serious glitches in the migration of a supply chain and order management system onto an ERP system from SAP cost the company $400 million in revenue and left customers with unfilled orders last quarter.

Adding insult to injury, Sun President and COO Jonathan Schwartz has been carping at HP on his Weblog, criticizing the company for its poor strategic direction. HP sought to silence Schwartz by firing off a letter demanding he stop commenting on the company.

HP might find it easier to silence critics and succeed if it had a clearer idea of where its headed. When the company acquired Compaq, it became a storage behemoth. Since then, however, the company has failed to capitalize on that position as it has lost ground to EMC and Dell. Does the company want to be the next IBM, making money on services in support of commodity blades running an open-source operating system? Or is it the next Apple, with music players—or Kodak, with digital cameras? Maybe its a mass-market competitor competing with Dell, doubling the number of retail outlets where its products are sold during the past year. Is it a new Sun, selling mainstream 64-bit x86 chips, or is it an old Sun, offering high-priced 64-bit hardware just as Sun itself seems to be turning back from that course? One way or another, HP wants to increase its earnings per share—even if it has to buy back $1.3 billion worth of stock to do so.

A statement from HP indicated that the decision to stop selling Itanium workstations was based on customer needs: “In working with and listening to our high-performance workstation partners and customers, we have become aware that the focus in this arena is being driven toward 64-bit extension technology.” Perhaps HP should have started listening to its customers a little earlier.

When it came to the Itanium, HP put its destiny in Intels hands. Now that its destiny is on the line, its time for HP to prove it can take matters into its own hands. We think the customers that HP says its listening to are probably saying they want a clear strategic direction and competent execution. Clarity could come from spinning out consumer and printing divisions, leaving HP to get serious about enterprise customer needs.

HP management should consider all options. Time is short, but theres still time for HP to be the enterprise player it can and should be.

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