HP: Staring Up At The CLouds

This blog was also published on the Neuralytix website.

Yesterday, Hewlett-Packard announced it’s third quarter 2013 results and investors and industry watchers were not amused. And no wonder: revenue was down, earnings were down, and Enterprise Group chief Dave Donatelli was “reassigned”. Revenue had predictably declined in Personal Systems , as well as Printing. Enterprise Group, and Enterprise Services. The only part of HP that didn’t report a decline was the Software group and that was a measly 1% gain and represented only 3% of total revenue. CEO Meg Whitman said that HP saw “continued weak enterprise spending” and blamed “inconsistent execution” for the continued softness in revenue.

The decline in revenue, especially the Enterprise Group (-9% overall), was not exactly startling. Hardware buy has continued to shift from internal IT to cloud vendors such as Amazon, Google, and Rackspace.  In addition,  HP continues to face traditional rivals such as IBM, Oracle and Microsoft along with and a host of smaller cloud infrastructure providers. HP has it’s own cloud offering, Converged Cloud, that competes with other cloud infrastructure vendors but also cannibalizes its own enterprise hardware systems.

More important than the hardware market changes is the shift in software buying to cloud software or Software-as-a-Service. For the IT professional or Line of Business manager in the process of buying a new application, hardware may not even be a consideration. When a company buys a CRM application from Salesforce.com or Human Capital Management from SAP Successfactors, it doesn’t worry about servers or storage. It doesn’t care about cloud infrastructure either.  It doesn’t care about infrastructure at all. Hardware is just part of the package. From the buyer’s perspective, the application might as well be running by magic. With no end user – as opposed to IT – facing applications, HP will continue to struggle from this change in the software landscape.

With the number of hardware buyers diminishing and few major enterprise software applications, HP will continue to suffer. Their rivals, especially Microsoft, IBM, and Oracle, continue to  invest in cloud infrastructure and cloud software applications. HP is not well positioned to compete with these multi-faceted IT companies given it’s limited software portfolio.

So far the financial turnaround has taken five years. The big question is when the big overhaul in the business will come. The answer may well be, “Not soon enough.”

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