HP Self Destruction Fully Implemented

This is a devastating expose on the dysfunctional upper echelon at HP:

“The company is coming apart at the seams,” said one person familiar with H.P.’s operations. “Because they may or may not be selling the PC business, the enterprise side is completely frozen. The business customers who buy tens of thousands of these machines along with support contracts are shutting them out. Dell and Lenovo are all over these accounts. They’re having a field day. H.P. is self-destructing.” A full-page ad in major newspapers trying to reassure PC customers did little to assuage doubts.

I feel sad and pissed off at the same time… HP is a company that literally defined Silicon Valley at one point but has become in more recent years the laughingstock as the company that went out of it’s way to snatch defeat from the jaws of victory.

When Apotheker was hired there was a lively Enterprise Irregulars thread on the news and several people expressed dismay that HP had just hired a CEO who understood only $4b of HP’s $126b in annual revenue, and that observation has never been more poignant than it is today.

In the wake of the last week’s public airing of Apotheker’s fate, he is done at HP and I feel bad for him personally because after this it is hard to imagine any scenario where his professional reputation recovers. While he should have known this was not a good fit for him the fact is that HP’s Board of Directors was tasked with finding the right person for the job, not the person who would say yes.

HP’s Board also should be overhauled, and by overhaul I mean completely replaced. Shareholders have suffered tremendously on their watch and the history of Board dysfunction going back to Fiorina needs to be addressed. Exhibit A for the case that they are unwilling to acknowledge their failings is the news that they are considering Meg Whitman as interim CEO.

UPDATE: Kara Swisher is reporting that Whitman will in fact get the CEO role at HP, as early as today. HP has gone from a CEO with experience in 3% of their business to a CEO with experience in 0.00%. Brilliant.


HP + Autonomy is Unlikely

There was an active Enterprise Irregulars discussion on HP the last couple of days, which then caused me consider how HP could pull it off.

I don’t see how HP can do the deal for $10b in cash when that is all the cash they have and it’s looking like their debt is going to get downgraded, which will drive up their borrowing costs. Their stock took a 20% hit today so doing a deal in stock just got more expensive, a lot more expensive.

The more I look at it the more I come away less concerned about whether or not they should but rather if they can even get a deal done. Given the confidence issue there are a lot of big holders (27% of the stock is held by 10 funds) who are going to be very critical of any plan that Apotheker puts forward.

So it seems where they are is that a buyer for the PC business, which itself is estimated to reflect 13% of the stock valuation or about $6.4b at current valuation, will need to emerge in order for the Autonomy deal to go forward. In this economy who thinks that is a high probability scenario?

If the deal does proceed given the turmoil that HP finds itself in right now, it’s probably a bigger statement of uncertainty about Autonomy than any statement on HP.

Read My Lips: We Are Not Walking Away from WebOS

Today comes news leaked from an internal HP all hands meeting that the company is not abandoning WebOS, 15 months after acquiring it for $1.2 billion. This is how we get all our news about HP these days, leaked memos and meeting soundbites.

Watch for two main arguments being presented, the first by the tech pundit community and the second by HP itself in an effort to salvage whatever dignity remains after spending a lot of money on an acquisition that many people, including myself, said makes sense but then completely failing on the follow through.

First the tech pundits, who are centering on the IP is the main asset argument. In light of Googola that’s all we have been talking about for 2 weeks, right? So this simply has to be a no brainer for why WebOS is worth buckets of money… well maybe buckets of loose change.

It may well be that the remnants of Palm are sold off as a patent library but I have an impossibly hard time believing they will salvage even a symbolic victory from this. Estimates put HP’s acquired patent library at about 1,700 and for the sake of argument we can assume that they are predominately in the smartphone arena given Palm’s history.

Let’s say that 25% of those patents are coming up on end of life and another 25% are highly specific to Palm’s early devices and no longer relevant. So we’ll discount it by half and using Google per-per-patent benchmark of $550k per patent we arrive at a valuation of $467m, which is really dependent upon there being some competitive bidding for the assets otherwise it’s a complete fire sale. Not chump change but certainly a black eye for HP considering how much they paid for Palm last year, and then supported it through where we are today.

We also hear talk of licensing the WebOS… really? HP expects us to believe that HTC and Samsung are going to license an OS for which there is little app support, runs on hardware they don’t use (Qualcomm), is directly competitive with their other partners, predominately Android and Microsoft, and for which no hardware market success has been demonstrated? That’s the strategy?

I’m going to go out on the limb and just say right now that we have seen the last of WebOS (and when they go on clearance at Best Buy I am going to be in line to get one!).

Lessons in Marketing – HP TouchPad

Today comes news about disappointing HP TouchPad sales numbers and I am not surprised given the weak marketing they have exhibited for this product. Like RIM’s failed PlayBook the HP devices suffers from a marketing initiative that fails to connect with what consumers want in a tablet.

HP and RIM both seem to believe that selling a device on the merits of technical dimensions matters to consumers… like multitasking and “plays Flash”. Who gives a shit?

Consumers want apps, fashion, and a tablet that is perceived as fun. The TouchPad is none of these and on the app front their efforts are particularly weak with no app store and a claim of “thousands of apps” yet the ones they feature are less than inspiring. For example, their social networking category has Facebook, WordPress, and two SMS apps… SMS and WordPress as social networking? Really? No Twitter?

If they don’t have a large app catalog then so be it but don’t focus on it as a feature which only serves to demonstrate the deficiency. Go all in on HTML5 and feature web apps that negate the need for downloadable apps but even then stay away from the technical discussion that consumers really don’t care about.

What is especially irritating about the TouchPad is that it actually looks like a really slick tablet and with aggressive pricing, a carrier strategy, and a less sucky marketing campaign they could probably do pretty well with it.

HP and Palm, Beyond Smart Phones

Enough has been written about HP acquiring Palm that I don’t think it’s that newsworthy today… however something has been bouncing around my hamster cage since reading the coverage yesterday that I’m not ready to let it go.

Maybe this isn’t about smart phones at all? Put another way, of course this is about smart phones but maybe the value of Palm to HP goes way beyond smart phones. Arguably the two assets that Palm has which are worth something are the credibility of the Palm brand and the critically acclaimed (by geeks that is) WebOS. As Apple and Google have proved with the iPhone OS and Android respectively, there is nothing about these platform operating systems that requires a voice communication capability be attached to them… in other words a smart phone doesn’t have to be a phone.

HP already has a tablet and netbook business, one that depends on Microsoft, and I can imagine the frustration that HP executives must feel to have invested so much into that line of business yet have it muddle around in the back of the pack with regard to mindshare. Similarly with smart phone handsets, HP has respectable entries and while it’s long odds that HP would walk away from Windows Mobile, especially on the verge of Windows 7 Mobile, I can believe that HP wants more control over their OS platform for these devices.

Furthermore, the market has declared that they are welcoming of competition at the platform OS level, using Windows Mobile is no longer a safe choice for handset makers and arguably it is a liability as consumers, business and mass market alike, view this as the regressive choice.

There are risks, of course, and if building out the required app marketplace around WebOS were easy then Palm would have done it, but the core risk is that the market consolidates around Android and iPhone OS for tablets and other types of mobile web devices and being 3rd or 4th in that market means you aren’t in that market. In such a scenario HP is in big trouble because they own the mobile OS, which means hitching their wagon to Android becomes problematic (HP already has an Android netbook but is a minor entry in their offering so I expect it will go away now).

All things considered, the risks are significant but the market is still in the formative stages and I doubt it will be winner take all like desktop computing was. The value of the acquisition is roughly 1% of HP’s market capitalization so from a financial standpoint they are not exposed like they were with Compaq,in other words investors will give them a lot of latitude as they make this work and investors will clearly appreciate that HP has elevated themselves into a new peer group with Google and Apple for the mobile marketplace.

On balance, I like this deal a lot in spite of significant forward risk for making it all work.

Mobile Enterprise

I am moderating a panel tomorrow night on “mobile and enterprises” featuring key people from Google, HP, and DoubleDutch (white label FourSquare). This is shaping up to be a really interesting discussion and what I like about this venue is that the event itself is intimate which encourages good discussion.

The way I’m approaching this is as follows, there are 3 fundamental dimensions to the mobile enterprise:

  1. Unified communications: The integration of voice telephony and a range of messaging technology, as well as the unchaining of these technologies from the desk, are changing how people conduct business
  2. App ecosystems: We have evolved along a fairly predictable path with regard to mobile apps, first we started out replicating desktop applications as small screen formatted and when the limits of this approach were reached developers started building mobile apps as if they had no desktop counterpart. In other words, the development of mobile applications is in a renaissance period exhibited by user experience creativity and the integration of mobile specific hardware capabilities, like location based services.
  3. Mobile internet devices: The enthusiastic reception that devices like the Kindle, Nook, and iPad have received underscored the point that mobile devices do not have to be mobile phones. We are fully unwinding the notion that mobile data and mobile telephony are one in the same and this will have profound implications for companies that have a vested interest in the mobile enterprise, as well as the carriers who are providing the infrastructure services for large enterprises.

I hope you will be able to attend this event, I’m looking forward to a spirited discussion that touches on all three of the points I raised above.

HP/EDS Makes Sense

Dennis nicely captured the 3 people that I’ve read on the HP/EDS deal: Tom Foremski, Larry Dignan, and Vinnie Mirchandani:

My take is skewed by experiences I’ve seen in Europe where EDS has been removed or had its contractual relationships significantly cut back as projects have either failed, been ‘botched’ or it’s been forced to bid under onerous conditions. While everyone points to flat growth, contract cutbacks and changes in the infrastructure world, the long term problems in some of these massive contracts have made EDS a relatively target.

[From HP to take out EDS: does it make sense? | Irregular Enterprise | ZDNet.com]

This deal actually makes a lot of sense because EDS has been under a lot of pressure to improve performance while at the same time being constrained by their existing business, the industry, and culture. Acquisitions have the potential to disrupt all three factors.

Secondly, for HP this is a good move because of EDS’ outsourcing business providing a growth opportunity not just for services but also hardware, HP’s core business. These businesses require extreme scale in order for the economics to work and as a consequence the server hardware market is contracting and expanding at the same time. With companies increasingly moving to hosted data centers and on-demand applications, not to mention hosted cloud initiatives, there are fewer but bigger hardware purchasers.

Lastly, HP definitely needs to get in the game with a cloud initiative and while EDS doesn’t explicitly have that asset today it is not a stretch to give them the benefit of the doubt for their ability to get in this game given the right prioritization.

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