HP will grow future on clouds and analytics
Apotheker ain't gonna buy legacy software
Comment Let's talk about the money first because if the corporate strategy laid out yesterday by Hewlett-Packard's new president and chief executive officer, Leo Apotheker, doesn't pan out, neither will the ever-increasing dividends that are supposed to get Wall Street all fired up.
In conjunction with its HP Summit for analysts and journalists in San Francisco yesterday, Cathie Lesjak, the company's chief financial officer, said that HP would be paying its regularly scheduled quarterly dividend of 8 cents per share in April, as expected. But in the following year, the company will boost that dividend by 50 per cent, to 12 cents per share, and then intends to boost the dividend "in the double digits" in each successive year after that. HP has 2.2 billion shares outstanding, so at 12 cents a pop you're talking about north of $1bn in cash each year.
HP is not as rich as IBM or Apple, which are in roughly the same revenue category, so a billion simoleons is a lot of, er, clams.
So what is going to be driving HP's growth in the coming years? Cloud computing and business analytics. I have no idea what this image has to do with cloudy infrastructure or big data, but this was the opening image of the summit that greeted attendees:
Resistance to clouds is apparently futile.
Just a little disturbing, isn't it?
Apotheker took the stage, his first big shindig since taking over from Mark Hurd (now at Oracle) four months ago, and rattled off all of HP's core strengths. This includes being number one or two in all the core markets it participates in among consumers, SMBs, and large enterprises; operations in 170 countries; a broad and deep portfolio of products; a vast supply chain that gives HP buying power among parts suppliers; growing research and development spending; a good balance sheet; and more than 300,000 employees worldwide.
"Our reach and scale are unmatched," Apotheker declared. And that, he said, was why HP was going to be the partner of choice as companies make the transition from a traditional IT stack consisting of devices, operating systems, and applications, to one of cloud computing services and connectivity linking them together – and turning us into something that Lesjak referred to as the "pro-sumer", which is apparently part professional and part consumer:
Pro-Sumer Man: You never stop working, you keep your job.
Apotheker said that the PC is the on-ramp to the cloud and that the printer is the off-ramp, and that HP and its partners would be able to build out a "cloud stack" consisting of connected devices including PCs, smartphones, and tablets, which would hook back into an HP public cloud, internal clouds built of HP iron and software as well as that from partners, and hybrids that allow applications to jump from the HP cloud and back into the data center again. Apotheker said that HP would offer raw infrastructure clouds as well as platform clouds – what used to be called "middleware," as he put it – but offered no details on how HP would do this without competing with the big cloudy providers that buy its servers. (Maybe they are buying more Dell iron than we think?) This cloud will include private, virtual private, and public partitions (meaning you can plunk a slice of it into your own data center or use HP's or do a little of both and cloudburst from one to the other). On top of that will be platform services for building, testing, and deploying cloud services (what we used to call "applications"), and in front of this will be an "open cloud marketplace" for generic consumer, SMB, and enterprise applications as well as industry vertical applications.
"We intend to be the platform for cloud and connectivity," said Apotheker, adding that we will live in a world with "each of us with our own private cloud, with our own personal and consumer life." Later he said that "HP has the ambition to be in all layers of the cloud".
HP president and CEO, Leo Apotheker
Apotheker did not want to be drawn out on specific cloud plans from HP, and when asked about how this might affect server deals with Amazon or appliance deals with Microsoft, HP's CEO was a bit coy. "If you want to be in the cloud business, it has to be on a large scale, it has to be multilingual, and you have to be able to serve anyone anywhere." He said that HP had billions of dollars in cloud-related sales already and bristled at the idea that HP had to catch up with either IBM or Amazon, and said that it was "pretty damned simple" to catch up and compete because the company had 25,000 enterprise people to sell cloudy infrastructure.
HP goes to war 'with the army it has'
HP will, like rival IBM, move into higher value products and services, but it is not selling off its PC business, as was erroneously reported by Taiwanese business paper Commercial Times last week. HP will continue to build out its sales force for systems and services, and invest in "cloud and connectivity resources," particularly security (integral to clouds) and data analytics that can bring together unstructured webby data with transactional, operational data to do a better job running a business.
Martin Fink, general manager of HP's Business Critical Systems unit, which used to be solely dedicated to its HP-UX, OpenVMS, and NonStop platforms, was brought up on stage to show off a new data analytics appliance based on software that HP is in the process of getting its hands on through its pending acquisition of Vertica. Hot web property Groupon plans to run the Vertica Analytics Database on Amazon's EC2 cloud, but you can bet that HP wants to get this and a lot of other customers running such workloads on its own iron in its own data centers. (In the example that Fink showed, a car rental application was boosted with analytics that showed the rental company should charge a client more money based on his driving record, mixing the historical data in the company's transactional systems with heaven only knows what data from what I presume would be insurance companies and government agencies that track driving habits.)
The plan for the Vertica software is to sell it as free-standing software, as a service that companies can buy in cloudy fashion, and as an appliance that companies can install in their own data centers in quarter, half, and full rack configurations to do real-time, big data analytics.
As former US Defense Secretary Donald Rumsfeld once observed, possibly to his chagrin: "You go to war with the army you have, not the army you might want or wish to have."
When you sift for the nuggets at the HP Summit today, what Apotheker basically said was what we already knew: HP can't buy its way into ERP software or middleware software because those markets are already owned by companies that are too big to buy. (It's a bit like too big to fail, in fact.) And HP has to sell what it on its own truck, protect its core PC, systems and printer businesses, and mix them up in an exciting way that lets HP extract different value from its hodge-podge of products. I would not be at all surprised to see HP start selling virtual PCs stored out on the cloud, cutting into PC sales but boosting server sales.
The strategy is no less bizarre than IBM selling off its application software businesses, PCs, disks, and printers over the past two decades; having its reseller channel push all but the biggest boxes at the largest accounts; focusing the company like a laser on services; and spending a fortune on software acquisitions in the past decade-and-a-half. It is throwing off cash that is almost as sweet as what Apple can do these days. ®