Posts Tagged ‘HP’

HP’s Split: A Sound Strategy Or A Rabbit Pulled Out Of A Hat?

October 8th, 2014

Anyone following HP’s corporate developments closely in the last three decades has seen many rabbits pulled out of a hat.

First came outsourcing, which was supposed to cut cost and limit corporate size.Outsourcing52

A press release by HP back in 2002 says it all:

“Hewlett-Packard HPQ -4.48% Company today announced it is planning additional outsourcing of its PC manufacturing facilities worldwide, in keeping with its longstanding strategy to decrease operations costs and improve profitability. This move will allow HP to take advantage of the flexibility (my underlining) and cost benefits associated with using non-dedicated factories. . .

In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements. Outsourcing PC manufacturing allows HP to focus (my underlining) on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.”

In the short-term, outsourcing probably had all these consequences. In the long-term, it had an unintended consequence, however–the fragmentation and disintegration of a company’s supply chain.

This made entry of new competitors into HP’s turf easier. And that’s how the company ended giving its competitive advantage away, piece-by-piece.

Second came a string of bad acquisitions– in an attempt to fight ‘the last war’ in a number of segments of the technology industry — which drained Hewlett-Packard’s resources. The purchase of Compaq Computer in 2001 was supposed to provide HP with a scale advantage in the PC market and allow it to compete effectively against Dell  Computer, IBM IBM -1.76%, and all sorts of emerging Asian competitors. The purchase of near-bankrupt Palm in 2010 was supposed to help the company enter the fast growing mobile devices market, which began to replace PCs. And the acquisition of enterprise software maker Autonomy in 2011 (at a hefty price of $10.3 billion) pitted the company against three major competitors – CRM -2.38%, Oracle, and IBM.

Each strategic move, which was followed by scores of layoffs of talented employees, helped leadership buy time, but it didn’t help the company produce the right innovations and catch up with emerging trends in the high technology industries. As a commentator put it in response to one of our previous pieces on Hewlett-Packard’s and Dell’s outsourcing strategy: “Dell and HP both snored through the whole wireless smart device revolution of the last decade and hitched their wagons to the PC market (which is dying). It would not have mattered whether or not they kept their PC supply chains in house or not. I don’t see Dell and/or HP overly outsourcing product design/branding/marketing – it’s just that there is a lack of innovation and vision in those areas for both companies.”

That’s why each of these strategic initiatives turned out to be rabbits pulled out of a hat.

Now comes a split of the company into two separate public companies: Hewlett-Packard Enterprise, which “will define the next generation of technology infrastructure, software and services for the New Style of IT,” according to a company press release.  And HP Inc.,”which will be the leading personal systems and printing company.” Is it a sound strategic move or another rabbit pulled out of the hat?

Leadership thinks it is a sound move, as it will help each company to better focus on its own industry segment, while maintain sufficient scale: “Hewlett-Packard Enterprise will define the next generation of technology,” so goes the official announcement.

“HP Inc. will be the leading personal systems and printing company delivering innovations that will empower people to create, interact and inspire like never before. This strategic step provides each new company with the focus (my underlining), financial resources and flexibility (my underlining) to adapt quickly to market and customer dynamics while generating long-term value for shareholders.”

Wall Street thinks so, too, at least the first trading day following the announcement of the split, sending the company’s stock 4.7% higher.

Obviously, corporate splits are back in fashion. But there is one thing that isn’t clear to me: How each of the two corporate pieces, which maintain the HP brand name, will eventually return to the company’s old innovation trait.

Until I see a clear answer to this question, I’ll be very skeptical about the nature of HP’s latest strategic move.


Worcestershire to appoint HP for managed ICT services deal

September 26th, 2014

HP expected to oversee transformation of council’s IT service delivery model and migration from legacy platformsOutsourcing32

Worcestershire County Council is today expected to approve an agreement with HP Enterprise Services UK to oversee managed ICT services for the authority.

The agreement, which will see the company taking responsibility for the council’s IT needs, along with migrating its legacy telecommunications platforms to a unified communications system, follows on from a review conducted by the authority between 2013 and 2014 into overhauling its service delivery model.

The council has said that the agreement is expected to lead to overall revenue savings of £3.4m over a seven year period through a focus on flexible service provision.

According to council documents , HP was selected as the preferred bidder for the contract based on the company proposing a shared approach to risk, as well as having the lowest cost of three shortlisted bidders.

Should the council approve the contract, which is expected to begin by December of this year, the transition of the council’s operations to the new service provider is expected to take around three months.

Under the proposals, while Worcestershire “retains the risk” from any potential reduction in service volumes – whether from changes to user, devices and server numbers – HP would “assume” possible risks resulting from operational performance and efficiencies.

“HP Enterprise Services UK is a highly recognisable and mature ICT Service Provider which will be a household name to many,” said the council.

“They have an increasing presence within the local government marketplace and extensive experience of delivering large scale ICT managed services across multiple sectors.”

According to the council, the agreement with HP is expected to provide additional service value through considerations such as through supporting key sector industries and skills like cyber security and advanced manufacturing in Worcestershire.

HP has also pledged to:

Support local small and medium-sized enterprises (SMEs) in being “more successful”.
Providing young people with skills and helping individuals classed as not in employment, education, or training (NEETS) to gain certification and training for the workplace.
Alan Mo, research director for public sector analysis group Kable said that the agreement reflected the growing pressures on local authorities to deliver service improvements without significant costs, that can minimise longer term financial risk.

Mo added that given current uncertainty facing councils and the possibility of a decline in required service volumes over the lifespan of the council’s agreement, HP’s proposal for managed services took into account the possibility for changing volumetrics.

“It’s unsurprising that all local government outsourcing deals – including this one – emphasise the importance of including measures to deliver social value and boost local economies. With outsourcing being such a politically charged topic, and one that is invariably surrounded by negative press, any scheme or commitment by suppliers to generate social value, create jobs and deliver local economic value will always help appease some of the objectors,” he said “But as councils increasingly emphasise these needs when setting their key procurement objectives, suppliers need to be much more creative in order to stand out from the competition.”

“HP managed this in Norfolk (although not theoretically an outsource agreement), and it’s done it again here, especially with its commitment to promote and support ‘key sector industries and skills for Worcestershire such as Advanced Manufacturing and Cyber Security’.”


Analyst Calls Cloud the Bright Spot for HP Services

August 25th, 2014

Even in the face of declining revenue, Hewlett-Packard (HPQ) Services has a bright spot, according to one Technology Business Research (TBR) analyst.outsourcing9

Cassandra Mooshian, a TBR analyst, noted HP Services’ revenue during the second quarter of 2014 showed continued “revenue contraction.” Total revenue was $7.7 billion for the quarter, down 5.4 percent year over year and 1.9 percent sequentially.

Technology services, IT outsourcing and applications and business services all were down sequentially and from the previous year’s same quarter. But the one shining star within HP Services has to do with its strategic Enterprise Services Business, which includes security, mobility, analytics and, of course, cloud. That business segment grew by double-digits year over year, and Mooshian also noted that its signings growth was positive for the first time in nine quarters.

“We expect HP Services’ margins to improve on year-to-year terms, while fluctuating sequentially, over the next six quarters as a result of improved processes around service delivery and better workforce utilization,” Mooshian wrote in her analysis of the quarter’s earnings.

Cloud is the bright spot within HP Services, for sure, but Mooshian that its greatest cloud strength lies in managed private cloud services.

“HP announced HP Helion Managed Virtual Private Cloud (VPC) Lean in August, a managed IaaS solution without the bells and whistles such that it can be offered at an attractive price point to smaller enterprises and SMBs that have small budgets but want to run their lighter workloads such as collaboration and application testing and development on a managed private cloud,” Mooshian wrote. “TBR believes HP’s tenure and expertise in the IT infrastructure, outsourcing and IT support services markets have driven HP’s strength in cloud to managed private cloud.”

Strategic alliances are the vendor’s best bet in expanding its portfolio and global revenue, Mooshian noted. For the channel, this is a positive, as “HP is utilizing its rooted channel and partner relationships to expand its portfolio and reach in emerging areas of the IT landscape, particularly around cloud, mobility and Big Data.”

“We believe that as HP restructures, it does not have the resources available, both monetary and personnel, to acquire as some of its peers do, leaving portfolio developments and furthering its global reach up to R&D investments and partnerships,” Mooshian wrote.


HP Systems Get A Bump Thanks To IBM-Lenovo Deal

August 22nd, 2014

The expected drawn-out regulatory approval process for IBM’s sale of its System x X86 server business to Lenovo Group has put somOutsourcing5e bounce into the X86 server line from Hewlett-Packard. In the third quarter of fiscal 2014 ended in July, HP said that it believes it has gained market share against its peers in systems. The company is also seeing market share gains against Cisco in networking and is getting good growth on so-called converged storage platforms even as traditional storage arrays continue to show weakness.

In the quarter, revenues across all product lines at HP rose by 1.3 percent to $27.6 billion. HP’s research and development costs rose by 11.3 percent to $887 million and it also booked $649 million in restructuring charges, which was a bit higher than expected. These and other downward pressures took their toll on net income, which fell by 29.1 percent to $985 million. The overall restructuring charges for fiscal 2014 will be in line with expectations. HP announced a broad restructuring back in May 2012, with up to 27,000 employees being let go, and earlier this year the company expanded that layoff to a total of 34,000 employees.

HP’s Enterprise Group, which sells servers, storage, switches, and services for all of this gear, had a 1.9 percent revenue increase in the quarter, to $6.89 billion, but earnings before taxes fell 5.6 percent to $966 million. HP does not provide pre-tax earnings for the various divisions within Enterprise Group, but it does break out revenues.

The Industry Standard Servers division, which peddles X86 iron and which is roughly analogous to IBM’s System x division, had $3.1 billion in revenues, up 8.6 percent and growing many times faster than the market at large. HP’s ProLiant and other X86 server sales rose across all geographic regions and average selling prices rose in the double digits as customers added more features and peripherals to the systems they acquired. HP is facing a tough compare for its fiscal Q4, however, after winning a huge deal last fall from Microsoft for its Bing search engine.

“We are seeing good early traction with service providers as a result of our partnership with Foxconn to produce a line of cloud-optimized servers,” explained HP CEO Meg Whitman on a call with Wall Street analysts going over the numbers, referring to a deal that HP inked with the giant Chinese manufacturer back in April to make a whole new line of as-yet unannounced cloudy systems. “And we moved aggressively to take advantage of the uncertainty customers feel about the IBM-Lenovo transaction. In head-to-head fights with IBM for deals, we are seeing clear improvement in win rates –all this while delivering stable growth margins.”

That seems to indicate that the margin pressure is not coming from X86 servers, but in other divisions within the Enterprise Group. The Business Critical Systems division, which includes machines running HP-UX Unix, OpenVMS, and NonStop platforms as well as the new high-end Xeon E7 systems such as the “Project Kraken” ProLiant Superdome ConvergedSystem 900 that debuted in June for SAP HANA in-memory workloads, had an 18 percent decline to $233 million, but was actually up one point sequentially and, importantly, HP saw order growth in the quarter for BCS products. This was no doubt an effect of the new Kraken systems, and the news that HP has licensed OpenVMS to VMS Software for future development and support will very likely help stabilize BCS sales going forward.

HP’s Networking division had $672 million in sales, up 4.4 percent, and Whitman said that the company had good growth in switching in particular but did not call out any specific figures except to say that the networking unit had outperformed Cisco once again.

On the storage front, sales of $796 million, down 4.4 percent, were lower than expected. Traditional storage arrays saw a 14 percent decline to $432 million, but converged storage, HP”s catch-word phrase for modern arrays, had 9 percent growth to $364 million and the 3PAR line returned to double-digit growth. If you add up 3PAR plus HP’s high-end XP and EVA arrays, revenues for these three as a group were down 7 percent year-on-year, but Lesjak said that HP nonetheless expected to gain market share in the external disk array market in the second calendar quarter. Whitman said that HP continues to grow its share in midrange storage, which frankly was always the strength of Compaq anyway. “As the market shifts increasingly from high-end to midrange storage, it is pressuring overall market growth,” explained Whitman. “But I believe this plays into a sweet spot for HP, which bodes well for us in the long term.”

Technology Services, the support arm of the Enterprise Group, had a 2.6 percent decline in the third fiscal quarter, to just a smidgen under $2.1 billion . Lower volumes of systems sales in prior quarters were the main cause of the decline, and Whitman said that margins were holding steady despite the decline.

On the cloud front, Whitman said that CloudSystem hardware showed double-digit growth in the third quarter, and that the commercial version of HP’s Helion OpenStack implementation would be ready for commercial use by October. HP has cooked up a Helion development platform for coders and is also getting ready to launch a set of OpenStack support and implementation services to go along with the Helion delivery. Whitman also said that HP would end up being the leading code contributor to the future “Juno” release of OpenStack, which is slated for release on October 16.

HP Software had its challenges during the quarter, with sales off 5 percent to $959 million. But pretax margins help up at $203 million in the quarter. The Autonomy tools for dealing with unstructured data and the Vertica parallel database both had revenue declines in the quarter, but security software revenues were up a bit. HP inked a big partnership with Hortonworks to integrate its Hadoop distribution into the Haven data analytics platform, and HP hopes this will bear fruit for the software group in the coming quarters. In general, Whitman said that HP software was shifting to a SaaS and subscription model for much of its software and away from licensing, which would have a near-time downward impact on revenues but would level things out over the long term. Bookings for IT management tools, including OpenView and other tools, delivered on a SaaS model rose by double-digits in the quarter, as an example. But across all of HP Software, license revenues were off 16 percent while SaaS revenues rose by 8 percent.

In other areas, HP Financial Services, which finances HP’s various wares for partners and customers, had revenues of $855 million, down 3 percent, and delivered $79 million in operating profits. HP Enterprise Services, which is mostly the old EDS systems integration and outsourcing business, had a 6.4 percent decline to $5.59 billion, and the printing business booked the same $5.59 billion in sales after a 3.8 percent decline. Thanks to the expiration of Windows XP support, the PC business had a nice uptick, rising 11.9 percent to $8.65 billion. That is probably not sustainable growth over the long term, but the PC business is actually helping HP’s bottom line right now, as hard as that might be to believe.


Capita is preferred bidder for £14m Wycombe council IT contract

July 8th, 2014

Capita has been selected as the preferred bidder for a £14 million IT outsourcing contract with Wycombe District Council.Outsourcing4

The deal includes IT support and maintenance, plus consulting and software development. It also covers face-to-face, telephone and online customer services.

The new contract is set to commence in February 2015. The tender decision is still subject to approval through the council’s committee process.

The tender notice last July said the work covered support and maintenance services for the council’s ICT and communications systems, along with customer contact services in connection with benefits, council tax, business rates, environmental health, housing, licensing and planning services.

Earlier this year, Capita was appointed by Wycombe to carry out a comprehensive review of the council’s discounted council tax regime, covering those getting a 25 per cent discount on single occupancy. Capita is working with Equifax, the credit reference agency, using data-matching technology to identify if people are claiming discounts they are not entitled to.

The latest contract is estimated to be worth £14 million over a five-year period. The deal comes as analyst TechMarketView says Capita has overtaken HP to become the largest – by revenue – UK software and IT services provider.


HP Improves Its Cloud Offering With SAP-HANA SaaS

July 4th, 2014

Outsourcing31Technology giant, Hewlett-Packard, has been restructuring its business to boost profitability and focus on new verticals that offer better growth opportunity. As part of this strategy, the company is continuously expanding its portfolio of cloud services. In a recent move, the company has struck a partnership with German enterprise software developer, SAP AG, to deploy SAP’s in-memory database platform HANA as a Software-as-a-Service (SaaS) model. We believe that this offering was a logical extension to an earlier deal according to which HP is the primary infrastructure provider for SAP-HANA deployment that will be carried out by Accenture. In this article, we will explore why cloud services are important for HP, and how it can generate more revenue for the company in the future. Furthermore, we will briefly explain the new cloud product offered by HP.

Why Are Cloud Services Important for HP?

HP generates nearly 75% of its revenues from hardware sales or hardware related activities. However, this business has low margins primarily due to intense competition from other manufacturers such as Dell, IBM, Lexmark etc. While the hardware business is HP’s cash cow, it is constantly diversifying its business by expanding its services division, especially the cloud business to infuse growth and improve profitability. HP’s services division contributes nearly 31% to its estimated stock value. Within this division, the three verticals i.e. technology services, infrastructure outsourcing and application and business services provide cloud related services. This division and its three sub division are expected to drive revenue growth for HP going forward, primarily due to adoption of cloud services by its clients.

According to our estimates, the technology services make up 15.5% of HP’s estimated value. The technology services division focuses on helping organizations improve their IT operations and transition to new technologies, such as virtualization, cloud computing and converged Infrastructure. We believe that technology services is responsible for delivering Platform-as-a-Service (PaaS) services since it combines all the ingredients such as cloud computing, converged infrastructure and virtualization. Currently, we estimate that revenues from this division to grow from $8 billion in 2013 to $10 billion by 2020. We believe that majority of this growth will come from cloud services especially PaaS. If HP can capture 5% of the expected $44 billion PaaS market, the revenue for this division can be significantly higher.

According to our estimates, the infrastructure outsourcing services makes up 10% of HP’s estimated value. It encompasses the management of data centers, IT security, cloud computing, workplace technology, networks, unified communications and enterprise service management. Since this division extensively deals with the infrastructure needs of a client, we believe that HP’s IaaS solution fall under its umbrella. Currently we estimate IOS revenues to increase from $14.6 billion in 2013 to over $17 billion by 2020. However, if HP were to get a significant chunk of IaaS market due to its dominant presence in the hardware (Server, storage and printing) industry, its revenues can be significantly higher, and our stock price estimate can increase by 10%

According to our estimates, the application and business services makes up 6% of HP’s estimated value. This division helps HP’s clients to modernize, develop, manage and integrate applications and information assets. HP delivers most of its SaaS solution through ABS. Considering, the expected growth of SaaS in the future, this division will be an important driver for HP’s revenue growth. While currently we project revenues from this division to grow from $8.7 billion to $10 billion by 2020, if HP were to capture 5% of the SaaS market, ABS revenues can grow to over $13 billion by 2020.

HP Expands Cloud Offering

As part of its strategy to focus on cloud services, the company has recently tied up with SAP to offer its in-memory HANA as a service. HP As-a-Service solution for SAP HANA can include the software license for SAP HANA, along with hardware and ongoing management services, bundled into a complete solution provided in a cost-effective, as-a-service model.

We believe that the company is well positioned to ride the wave of growth in the cloud computing industry through its portfolio of services. However, it remains to be seen whether the company can capitalize on its longstanding relationship with its clients to deliver outstanding Cloud computing services, especially in the face of intense competition from Amazon, IBM, Rackspace etc.

We presently have a $25.04 price estimate for HP, which is 25% below the current market price.


US computer giant Hewlett-Packard rakes in £140m a month from Whitehall

June 26th, 2014

Private IT companies are being paid almost £5bn a year by the taxpayer to run Government computer networks, startling new figures reveal today.Outsourcing31

An analysis of contracts across Whitehall shows that the American computer giant Hewlett-Packard alone was paid £140m a month last year by the Department of Work and Pensions (DWP) and the Ministry of Justice for computer services.

Another IT firm, Capgemini, holds contracts worth £1bn a year to supply and maintain computers across central and local government.

In total the Government paid £10bn to its top 20 contractors in 2013. Almost half of this was spent on IT.

The sums paid out to major international IT firms dwarf the £2.2bn paid to ‘outsourcing’ companies like Serco and G4S, who have been subjected to the most ferocious public criticism over their state contracts.

The figures were uncovered by the Whitehall think-tank, the Institute for Government, and Spend Network, which aggregates raw Whitehall spending data to show which private companies are the biggest recipients of taxpayer largesse.

Researchers studied 38 million transactions with over 180,000 suppliers. The project required over 16,000 hours of analysis over two years.

It reveals that out of the top 20 private sector contractors in Whitehall, six are IT firms who between them receive around £3bn a year from central government and another £1bn a year from local councils.

Among the biggest departmental spenders on IT were HM Revenue & Customs (HMRC), DWP and the Ministry of Defence. HMRC for example spent 86 per cent of its contracting budget with Capgemini.

Overall there are at least eight IT suppliers receiving more than £100m every year from a single government department, and at least 15 suppliers receiving more than £100m in annual revenues from multiple Government departments.

The largest contractor – the American IT giant Hewlett-Packard – has contracts worth £1.7bn a year.

The firm was one of the contractors given money by the DWP to develop its so far ill-fated Universal Credit project. £34m of that has so far been written-off.

Last night Cabinet Office sources said ministers were well aware that they were paying “over the odds” on a significant number of IT projects across Whitehall.

But they said there was currently very little they could do as the Government was locked into long-term contracts signed under the last Labour administration.

They added that a number of these were due for renewal in 2015/16 at which point they expected central government IT spend to fall very significantly.

“This is a problem which we raised on day one when we went into Government,” they said. “But many of these contracts were signed to run for many years without break clauses.

“We have a clear strategy in place to ensure that all future contracts will represent much better value for money and we expect very significant savings as these contracts come up for renewal.”

A spokeswoman for HP said the company was “a proud and longstanding supplier of IT products and services to Her Majesty’s Government” and provided “vital public services to UK citizens”.

“HP supports the drive for greater transparency and subcontracts around one quarter of its UK public sector ICT services work to other vendors of all shapes and sizes, including more than 700 small and medium enterprises,” she added.


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