When I had a television, on sleepless nights, I would sometimes stay up late watching reruns. After a certain hour, the infomercials would take over — I can’t tell you how many times I was tempted to order an ab cruncher or juicer, only to be saved at the last second by good sense. However, such good sense doesn’t prevail over at HP, which seems to go on the equivalent of late-night shopping sprees, only to regret them a few years later. I was reminded of my past behavior when I read the news about HP’s decision to trim its enterprise business even further and offshore nearly 60 percent of the workforce to overseas locations.
But first a little history about the company’s enterprise-services business.
Misadventures in Acquisitions
In May 2008 HP’s then CEO, Mark Hurd, bought consulting company Electronic Data Systems for about $13.9 billion, or about $25 per share. It was yet another HP attempt to become IBM Lite. Four years later, EDS had lost about $8 billion of its value. HP had bungled the acquisition badly, mostly because it didn’t understand how EDS business worked and scaled. (ComputerWeekly.com has an awesome breakdown of what went wrong.)
The Register wrote: “Let’s face it, these two firms have cultural issues in abundance. Can Californians and Texans really get along? Arnold Schwarzenegger might get on with George Bush, but that’s pretty unusual.” Based in Plano, Texas, EDS was the second large bungled acquisition: HP had already bought PC-maker Compaq, and today the only person who probably remembers that is presidential wannabe Carly Fiorina. At the time of the EDS acquisition, the Register said, “Whatever the two firms want, it’s fair to say the precedents for such a massive merger aren’t great.”
Clearly HP has a checkered record when it comes to acquisitions. HP’s other big-ticket acquisitions include Compaq Computer Corporation (2002), networking gear company 3Com (2009), smartphone maker Palm (2010), Autonomy (2011) and Aruba Networks, a maker of corporate-class Wi-Fi gear (2015). Given the current state of stasis at HP, it is hard to assign these acquisitions a passing grade.
But this kind of history isn’t the only reason HP is in trouble. Business Insider points out that HP Enterprise (which is being spun out as a separate company) is a rapidly shrinking entity. In 2008 HP Enterprise Services (ES) had 139,500 people. By 2012 the total was down to just under 110,000, and since then another 55,000 jobs have been or are in the process of being eliminated. More cuts are coming, and according to BI, the “new HPE expects to trim another 25,000 to 30,000,” most of them coming from ES or what was once EDS.
What a misadventure! And the future isn’t that bright either.
The Split That Won’t Fix Anything
In November HP will split into two companies: HP Enterprise (HPE) and HP Inc. HPE will be spearheaded by current HP CEO Meg Whitman. It will sell servers, storage, networking gear, software and services. The services business is called HP ES. Meanwhile HP Inc. will sell printers and personal computers.
The lack of leadership in any sector makes both HPs laggards with little or no hope to actually rebound in the constantly changing world of technology infrastructure. The cloud and mobility are the enemy for a company that has blown one tech transition after another. HP’s enemies are a bookseller, a search company and Microsoft — three companies who are devouring enterprise growth with their idea of what infrastructure looks like.
Meanwhile PC is going the way of phones and tablets, a market where HP has as much credibility as a North Korean dictator at the United Nations. If you look at its recent performance, HP Inc. is losing traction to Asian makers. The Japanese in particular have become particularly aggressive in the printer business.
“The fact that [Whitman] is choosing to be CEO of the enterprise business says everything that you need to know about the two trajectories of these companies,” noted Wharton management professor Emilie R. Feldman in a podcast. Loose translation: PC business is pretty crappy!
No Growth Ahead
While Whitman thinks the company is entering growth mode, veteran analyst Toni Sacconaghi of Sanford C. Bernstein and Co. doesn’t think so. He told The New York Times, “Half your portfolio is not going to grow for the next three years…is it really realistic that HP can grow?” Growth in the technology sector comes from new products and new ideas. Sadly, HP has neither.
A few years ago, in a conversation with my friend Pip Coburn (who spent a long time as a tech-stocks strategist for UBS before starting his own firm, Coburn Ventures), I mentioned that a certain company was dead, though not many realized it. And by “dead,” I didn’t mean that it was bankrupt, out of money or out of business. I meant it was dead in its ability to find growth, excitement and new ideas. Any positive energy had flattened and turned negative. “With that lens on, HP has been ‘dead’ for 15+ years,” Pip emailed me this morning.
Pip says that “companies have a space and time and purpose and when those fade the company would be wise to steadily shut itself down.” Like some other large tech companies, HP fits that bill. In a note to some of his clients, Pip pointed out, “The company [HP] doesn’t even do a good job of pretending to have a strategy.” And he is right.
HP Is in Denial
On Sept 15, 2015, HP hosted its analyst day and proclaimed that all sorts of good things are on the horizon. The new companies will allow it to become more focused and execute better, it argued. But ask yourself this question: Are there any executives worth their talent left at HP? The good ones have left to work at other companies, fast-growing startups where the pastures are greener and politics much less debilitating, where they’re making products that actually define the future. If anyone has survived HP’s cuts over the past 15 years, you can safely assume that they are politically savvy and know how to remain employed. Their key skill? Staying employed.
Candidly, I think the cloud is going to rain on Whitman’s parade. Yesterday the company told analysts that it has cloud revenues of $3 billion and that they are growing over 20 percent. I am not sure what kind of pyrotechnics were involved to arrive at that number. Analysts-being-analysts probably took HP at its word. The company claimed that the traditional IT business is going to grow. But IBM’s and EMC’s plunging legacy businesses point to a different reality for HP. Amazon’s cloud business is a huge challenge, not only for HP but also for everyone else. HP thinks it can do well with the hybrid cloud, but IBM and EMC hold that opinion as well. Some analysts estimate that IBM’s cloud business is about three times as big. (Again, I have a tough time figuring out how the numbers stack up.)
HP has reported a decline in revenue for the past 14 out of 15 quarters. How does a company suddenly return to growth from that kind of slide? Whitman told analysts that she is hoping for GDP-like organic growth. That is highly optimistic, and the question is, Can HP do it consistently? You have to be a hell of a believer to buy that line. Sure, HP Enterprise stock might go up, but I don’t think the company is going to suddenly become relevant.
It is easy to focus on failed chief executives, but the board can’t recuse itself from charges of miscues and mismanagement. Like Yahoo, the HP board has also been an epic fail in the new century. I don’t understand how we can hold founders, chief executives and paid employees accountable yet be so laissez-faire about corporate boards.
I never officially covered HP as a reporter. If I mentioned the company, it was mostly in comparison to Sun Microsystems, IBM and Dell. I found the company uninteresting and perhaps was a tad scared of it hiring goons to spy on me. I still find it uninteresting. I feel sad that a company whose name is the equivalent of technology’s Mount Olympus is being mismanaged to irrelevance.