The top brass at Hewlett-Packard Co held their security analyst meeting in New York yesterday, but remained silent on the latest reorganization rumors swirling around the IT giant.
Chairman and CEO Carly Fiorina would not confirm that the company would merge its Enterprise Systems Group and its HP Services group into a single entity called the Technology Solutions Group.
A report in the Wall Street Journal yesterday suggested that Ann Livermore, who heads up the services unit and who hails from pre-merger HP, will be the executive vice president of the new merged unit. Peter Blackmore, who was the executive vice president in charge of the Enterprise Systems Group, which controls the development and marketing of servers, storage, and systems management software, will be put in charge of the sales force for the new Technology Solutions Group.
The merger of the services and server/storage units, which is almost certainly going to happen in the coming quarters, would seem to have less to do with personalities and the pressures of running the two most difficult and widely scrutinized business at HP than it has to do with trying to gain synergy and market leverage by combining computing platforms and services into a single offering for customers who have grown tired of system integration headaches. HP would be wise to continue to report separate profit and loss statements for enterprise systems (which includes servers and storage) and services units even if it does merge them.
Fiorina did say that HP would start breaking out software sales and their profit and loss figures in coming quarters, which suggests that HP wants to demonstrate leadership in all categories it plays in. If HP does retain P&Ls for these units, it will be able to prove that the reorganization is not about masking the lack of revenue growth and dismal profits in the systems and storage area, but rather about changing the go-to-market strategy for HP as it attacks the enterprise and the small- and midsized business (SMB) markets. All Fiorina said in her presentation on the matter is that HP started in June to bring its services and systems units into closer alignment, and that this process was proceeding into future quarters.
In an interesting aside that is increasingly important in a Wal-Martized world, Fiorina made the case that HP has the IT industries’ largest supply chain, and that this would be a key deciding factor in HP’s future fortunes. The IT industry is a game of scope and scale, she explained. HP has a $37bn parts supply chain, and it is the number one consumer of X86 processors, X86 chipsets, memory, disk drives, Windows operating systems, laser engines, optical disk drives, LCD display panels, and lots of other IT components. HP also spends $5bn in contract manufacturing and is the top spender here. Perhaps equally significant is the fact that HP commands 10% of the world’s retail shelf space.
Our supply chain has become a competitive weapon, particularly when an economy turns soft. It is always important, but is also particularly important during a recovery when supplies are constrained and prices go up.
Over the long haul, she said that HP should be able to grow earnings at a rate of 20% a year, driven by IT sales that she expects to grow at twice the rate of growth in gross domestic product. In the short term, she said she is happy with consensus estimates for the current quarter. Our quarter is clearly on track, and we’ve had good Christmas selling.
This article is based on material originally produced by ComputerWire.