HP’s challenge: PCs and Printers don’t do much for Mobility, Cloud, and Big Data

I have followed HP since the late 1980s and found them an impressive operation.  The last few years have been confusing, indeed, and their current market position has been troubling.  There’s a confluence of market disruptors at play in the technology industry which sits poised for another one of its massive shake outs and upheavals.

Iron-centric vendors will be the most at risk which does not auger well for HP.  We will see the economic downdraft first in the channel, where a number of small business entities competing in the VAR space will be snuffed out as they struggle to transition over to a Managed Service Provider (MSP) business model.  It’s a function of lessening one’s reliance on hardware profits and making it up on subscription-based software and services provisioned out over the cloud.  There’s a cash-flow drain in the transition with which undercapitalized small businesses will struggle. 

Move up the food chain and the pressure on hardware revenue and profits will begin impacting big name vendors.  I will not be at all surprised to see, for example, IBM show a period of flat or even slightly declining revenue performance while maintaining its operating line.  I say this given the solid way in which this company has transitioned from hardware to software and services that goes back decades. 

HP has not been as nimble.  The profits gleaned from printer supplies certainly have kept that company afloat for quite some time, but now the pressures appear too great.  Meg Whitman essentially came out and admitted as much the other day.  Consider the challenges it faces:

·         1. It lacks a solid mobility offering

Mobility means smart phones and tablets in lieu of PCs, and HP has neither at the moment.  It will come out with a Windows Tablet and will be “betting on 8” (Windows8) almost as much as Microsoft.

·         2. Servers face similar threats

HP has been a major player in the server space which also faces competition from IaaS provisioners content to string together racks of generic server boards on low cost, usage-based pricing plans to end customers.  Server demand will not evaporate, to be sure, but neither will it serve as a growth engine to pull a company the size of HP out of the doldrums.

·         3. Cloud, Software and Services drive competitive differentiation

HP simply lacks a fair amount of scale here.  HP made a big bet here, however, picking up Autonomy for $10B and having EDS as a services arm, but this is not where its market reputation lies

For years HP had a well-earned reputation as the maker of very well engineered and reliable technology products.  They were viewed as a diverse manufacturer of piece parts or components with less robust marketing or business-specific knowledge to offer the way IBM can and does with its industry marketing/“Smarter X” orientation.  So HP’s reputation was one for reliable products.

End customers do not want to consider product anymore.  They simply want data access seamlessly provisioned to them.  Yes, they will have on premise hardware as necessary, but the network will increasingly be the computer and what iron located where will process and store company data will increasingly be deemed immaterial to the end customer.  Customers will simply care less about the iron in the utility computing model just as electric customers today do not care about where the electricity they consume gets generated.

And that represents HP’s greatest threat.  That which has been the source of their excellent reputation simply matters less to end customers than it has in the past.  Other vendors have narrowed the performance/reliability gap on the one hand, and customers want less and less of the product under their control on the other.  

Less competitive differentiation and less customer importance.  Ouch.

I personally cannot help but root for Hewlett Packard in these turbulent times.  I first started tracking them as they were late shifting from 16 bit to 32 bit minicomputer architectures.  The external market forces at play today make the necessary transition over to software and services by HP for more daunting a challenge for the company.