Those wondering how the HP split might shake out should read this piece in Bloomberg today. In summary, HP’s PC group just lost some of its pricing advantage, as the servers and other business-oriented gear are going with the new Hewlett-Packard Enterprise company. HP is currently Intel’s largest customer, but that will change as the two primary hardware lines are separated. (HP’s server gurus have been working on a competitive line using Applied Micro chipsets, so that ranking might eventually have been in jeopardy either way.)
On the other hand, given HP’s deservedly stodgy reputation in tablets and handheld PCs — despite, or perhaps because of, its acquisition of Palm in 2010 — the shakeup could enable the new HP Inc. to focus on trendier designs for the mobile market.
What’s not clear is whether each group will retain a certain number of chip designers. This is an area of strength for Apple, and HP Inc. will need to ensure it has the internal talent to advance in the hypercompetitive PC space.
In the end, Microsoft couldn’t pull the trigger. In Seattle, outside just wasn’t “in.”
The world’s largest software developer today named Satya Nadella, head of the the company’s Server and Tools unit, as its new chief executive. The 46-year-old Nadella becomes just the third person to lead Microsoft, one of the most successful and wealthiest companies ever.
So when John Thompson, Microsoft’s new chairman, says, “Satya is clearly the best person to lead Microsoft,” one wonders why it took so long for them to recognize it. Perhaps they had to go through the rituals before realizing the prettiest date was the one they already live with.
In opting for Nadella, Microsoft eschewed calls to go outside for an executive who might shake up its culture or sell of pieces to boost its share price. Like Intel, it chose continuity and engineering prowess over salesmanship and the flavor of the day.
My take is Microsoft’s culture isn’t the problem; it’s been the top management’s inability to establish the proper hierarchy to allow the brilliance of the company’s thousands of engineers to come through. Time and again, Microsoft has had great ideas on the drawing board, but been beaten to market by competitors that simply execute much faster (read: Apple). Under Nadella, that will have to change.
Clearly Nadella understands how hardware can drive software purchases. As head of Microsoft’s Server and Tools business, he led a $19 billion, 10,000-employee entity that is front and center in the world of cloud computing. As he told Venture Beat in an interview last May, “We broadly as a company are moving from a software company to a devices and services company, and that’s really the transformation, both in terms of technology and delivery – as well as business model. What I do, what our division does is very central to this.”
Given his knowledge of the hardware supply chain, we are eager to see whether Nadella sees value in pulling manufacturing in-house. Such a move could demonstrably alter the EMS landscape for years to come, not because Microsoft is a dominant customer of any of the major contract assemblers — Flextronics builds the Xbox, but none of the Top Tier EMS firms counts Microsoft at a 10% or more client — but because OEMs have a herd mentality and if it works for Microsoft, they will likely follow.
Thanks to the roughly $100 billion in cash Microsoft has on hand, Nadella will have the resources to get wherever he wants to go, and, with Steve Ballmer retiring and Bill Gates stepping down as chairman, he will have full authority to make the tough decisions without the specter of the founders looming over his shoulder. Those two decisions — cofounder Paul Allen stepped aside years ago and is now seen rocking out at Super Bowl parties for the Seattle Seahawks, which he owns — should not be downplayed, as Nadella will not only need the financial backing but the unmitigated authority to make Microsoft as successful in next three decades as it was in the last three.
Now, that won’t exactly come as a shock to most observers, as HP has been flat for some time. But CEO Meg Whitman yesterday acknowledged that the pain will intensify before the patient recovers, telling analysts that revenues would fall 11 to 13% over the next fiscal year.
In real dollars, that’s a drop of up to $16.5 billion, roughly the size of Jabil Circuit, or, the companies ranked No. 15 to 50 on the CIRCUITS ASSEMBLY Top 50.
Worse, Whitman said not to expect a turnaround before 2016.
Give Whitman credit for honesty, although keep in mind that, by setting the bar low, she raises the prospects for future knighthood should HP’s recovery come faster.
But what Whitman did not disclose is what, exactly, HP’s prescription for saving itself is. In all likelihood, that strategy will focus on paring of the company’s core product lines — servers, PCs and printer. Perhaps it will follow IBM’s lead and sell or spin off its PC unit, an idea that the company itself has floated in the past.
It says here, however, the company HP should be emulating is Apple. HP once was as respected as any business in the tech industry, admired for its stable and forward-thinking leadership, its commitment to research and development, and a manufacturer of the top rank. Today, that path is more remembrance than reality. The company has long since moved away from its manufacturing roots, outsourcing almost anything it could. (Foxconn has been a major beneficiary.) What HP, along with Dell and many of the other big PC makers, is learning the hard way is, you give away the family jewels at your own peril. By offloading its fixed assets — and that includes its people — HP also gave away its competitive advantage. It’s become a parody of itself, a business confined to imitation, not innovation. Sure, HP has to retool, but it should do so by going back to its roots, much like Apple did when Steve Jobs was welcomed back after 11 years wandering the desert.
“Invent” was a favorite marketing campaign of HP. The company should practice what it preaches, bring design and manufacturing back in-house, and strive to be the technology leader it once was. It can be done. But HP has to be committed to the task.
Here’s the first report I’ve seen that gets into the nitty-gritty behind the possible supply chain effects of HP’s PC spinoff/sale.
TrendForce was good enough to pull together the PC market share rankings and puts forth a cogent explanation of several possible outcomes, including — believe it or not — a potential hindrance to the Foxconn manufacturing tank.
Interestingly, while many pundits don’t believe the Taiwanese ODMs have the financial girth to absorb HP’s market-leading PC unit, one of the emerging possibilities would be Samsung, whose incentive to snatch it up would go (far) beyond box sales. Indeed, as TrendForce points out, Samsung could leverage the PC chain to create additional sales for its components and batteries. Samsung is flush with cash — more than $55 billion on its balance sheet, of which $20 billion is in cash or equivalents. (The head of HP’s PC unit says it is worth more than $10 billion.) It could handle the financial strain of taking on HP’s PC arm, even though revenue runs in the tens of billions per quarter and its operating profit has grown seven of the past eight quarters.
If an outside suitor doesn’t materialize, HP has a successful track record of spinning off businesses, with Agilent being the most prominent. If that happens, the supply chain status quo might be maintained.