HP's big splash on EDS all about shrinkage
Hurd 'The Butcher' gets out his knife
Comment I love this Mark Hurd guy. He's turning cost-cutting into an art form.
When HP and Compaq were joined in matrimony at the gates of Hell, Carly Fiorina celebrated all of the forthcoming "synergies." She promised that the combined companies would teach Spending a lesson it would never forget. But such pledges failed to generate much real excitement because Fiorina mostly meant HP would now buy toilet paper, paper clips and pens from single suppliers, giving HP a chance to bully vendors into lower pricing.
Hurd has done some of that unromantic cost-cutting stuff too in the past. At NCR, he discovered cruel and unusual ways to wring profits out of various business units by cutting jobs, slashing benefits and outsourcing work. That's not the stuff dreams are made of, unless you're really messed up or a consultant.
Once at HP, Hurd applied the same, callous hand, working unnecessary humans out of the organization while eating into the benefits of the remaining plebs. Again, though, where's the flair - the butcher bravado?
That, friends, comes with EDS.
A lot of people have gone to look at the EDS thing and returned confused. The company appears pretty damn bloated. Its financials aren't all that spectacular. HP already has a massive services organization, and, frankly, services are soooo last internet build out.
As Robert Cringely put it,
The goal here seems to be size for the sake of size, because it sure isn't size for the sake of profitability. This is a business segment, remember, that IBM has been carefully and quietly leaving for more than a year now only to have HP jump in with both feet by purchasing a competitor less profitable at this stuff than IBM. The result will be a bigger business for HP that returns lower profit margins, which makes no sense to me.
I wonder what would happen to an outfit like HP Services if the company just decided to forget about acquisitions and simply invest $12+ billion in their current operation? Heck, half the people working right now in HP Services probably worked at some point in their careers for EDS (or IBM). What DNA is HP acquiring here that they don't have already? [Emphasis added]
I happen to believe that Cringely and others have missed the real angle here. EDS will, in fact, fit into one of the most cunning corporate IT plays we've seen in years. It's a play that centers on cost-cutting. And it's a play that - get this - centers on being useful. (Sacrilege in the services game, I know.)
Here's the deal.
Hurd The Butcher
HP has been going on about its data center reduction for awhile. The company wants to shrink 85 data centers, thousands of servers and thousands of applications down to six mega computing facilities with more manageable amounts of stuff. It's pretty damn proud of this operation. See for yourself.
HP's well underway with this program, and will be selling itself as a model of consolidation soon enough. "This is what we learned. Follow us to the promised land."
How much stronger does such a story get after HP digests and then consolidates EDS too?
Good lord, y'all. Can you imagine the synerorgy that takes place when you throw 20,000 or so services people at a mass consolidation and make them fight to keep their jobs by coming up with things that actually work? I'm talking a battle to death around efficient data center design. The loser gets choked with fistfuls of free doughnuts and has scalding hot coffee poured on his groin.
Then the real genius kicks in a couple years down the road when the EDS consolidation is done, and HP can prove that its tortured itself twice. It will claim to know all the ins and outs behind the shrinkage process, and it will have more services people than you can imagine ready to help others with similar efforts. And throughout the whole process, HP learns how to kick out Sun Microsystems, Dell and Cisco gear with as much efficiency as possible.
Cringely wondered how HP buying EDS was better than just throwing $12bn more at HP services. Well, that's how it's better. HP has a pretty damn thorough story to tell - a consolidation tale that involves two of technology's biggest names. From a pure marketing perspective, IBM doesn't have a line to beat that. IBM looks like it's doing the same old thing.
The Extra Dash of Smarts
The $12bn marketing gamble only pays off if people really start consolidating on a massive scale, and they will.
There's no doubt that a certain class of applications will move to the utility computing model. These are the boring applications that you're already pulling off Unix boxes or lots of x86 systems and slotting on a couple of four-core Xeon machines. The process of moving all that code to utility services will take a very, very long time. You have to convince customers it's a safe and economical venture.
Most companies will try and reorganize their own operations before reaching that utility computing end point. So, that's customer X looking to get rid of gear and then gradually moving applications into the fabled cloud over many years.
Along the entire utility computing journey, HP can now offer some theoretically stellar consolidation services because, damn it, it's the expert at this stuff.
That's a pretty savvy play since the server makers are already losing out on hardware sales today thanks to better machines and virtualization code. HP can at least make as much money as possible off the shrinkage.
This may all seem basic enough, but I think there's some richness and complexity to HP's story.
Sun, for example, talks a lot about the boring applications which are consolidating and the interesting applications - high performance computing stuff, massive databases, SaaS pieces - that demand as much horsepower as possible. Thing is, Sun only really cares about catering to the latter crowd. It wants to sell more and more boxes all the time. The consolidators are no good to it.
Dell would like very much to have some of the consolidation action, but its services business is small tamales compared to HP's or IBM's. When Exxon or Pixar or GM want to shrink the hell out of their data centers are they going to turn to Dell or to HP, which revamped itself and then freaking EDS?
And versus IBM, well, HP's acquisition of EDS may help it put a fresh face on super-hyper-global-mega services.
See, Hurd The Butcher has turned cost-cutting into a religion. He's - dare I say it - put the, er, sexy back into consolidation. (Ouch - Ed.) Or at least he's going to once he's done revamping EDS.
But seriously, you can see where this is heading. Hurd will offer the Fortune 2000 a little piece of himself - a chunk of that magic that's done so very much for HP's share price and bottom line.
All Hurd has to do to pull all this off is ensure that the EDS swallowing is a success. That means no prolonged charges hitting HP's earnings. It means no technology integration disasters. And it means streamlining EDS's internal IT operations as quickly as possible.
Should all go according to plan, mark my words: Hurd The Butcher will come to consolidate you. ®