The Economist : HP Rising

Saturday, May 17, 2008

DURING the first half of this decade Carly Fiorina, then boss of Hewlett-Packard (HP), was forever answering the same frustrating questions about Dell and IBM, HP’s two more successful rivals.  Dell, she said, offered computers that were “low-tech and low-cost”, whereas IBM offered “high-tech and high-cost”.  Only HP, she said, was preparing to give customers “high-tech and low-cost”.  It was easier said than done. When Ms Fiorina tried to buy the computer-services arm of PricewaterhouseCoopers in 2000 to compete with IBM, the leader in that field, IBM beat her to it.  And when she bought Compaq to take on Dell, the leading PC-maker, shareholders revolted.  In 2005 the board fired her and hired Mark Hurd, a disciplined operations type, to focus on execution rather than vision.  Three years on Mr Hurd has mostly done that.  HP, having fully digested Compaq at last, has surpassed Dell to become the world’s biggest PC-maker.  This means that Mr Hurd is now ready to take on IBM, which has more than 7% of the $748 billion market for services, such as running the data centres of large companies and governments, or handling entire functions, such as personnel or claims processing.  The second-largest services firm, Electronic Data Systems (EDS), has much lower profit margins.  HP lags in fifth placeMr Hurd’s answer, announced this week, is to buy EDS for $13.9 billion.  He is getting a big name: EDS, founded by Ross Perot in 1962, pioneered the business of outsourced data-management.  But the company has been through turbulent times. Mr Perot sold EDS to General Motors in 1984—an unhappy combination that ended in 1996, when EDS was spun off.  It then suffered during the technology bust and made a big loss.  Under a new boss, it went into profit again, but with unimpressive margins.  Its subsequent boss, Ronald Rittenmeyer, will now become head of the combined services arm of EDS and HP, which will be almost as large as IBM’s. 

The prospect of digesting yet another big acquisition after Compaq may seem daunting.  Middle managers at HP still subscribe to the gentle, collegiate “HP way” of doing things.  The culture is that of Silicon Valley—relaxed and casual—and the cafeteria is big on ahi tuna.  At EDS, based in Plano, Texas, the style is “military, buttoned-down, and staid,” says Rick Sturm, the founder of Enterprise Management Associates, a consultancy.  People wear ties.  The cafeteria is full of steak and fries.  Compared with other services firms, which increasingly hire and operate in India, EDS is overwhelmingly American.  Mr Hurd, who came to California from Ohio, is likely to feel the culture clash less than his colleagues in the ranks.  His demeanour makes him “an EDS guy sitting on top of the HP way,” says one consultant.  Culture aside, EDS’s big selling point is to be the largest services firm that is independent of any hardware or software vendor.  It will continue to advise clients to buy systems from all vendors, says Mr Hurd, but those clients are now likely to pay more attention when the boxes come from HP.  Nonetheless, the deal marks another step in HP’s impressive comeback.  This week Mr Hurd increased his estimate of this year’s revenues to over $114 billion, despite the weak economy.  The verdict on Mr Hurd is that he has skilfully executed the strategy of his flamboyant predecessor…..

Reference : http://www.economist.com/business/displaystory.cfm?story_id=11376881

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: