The Fall out from HP


Last week Hewlett-Packard made the stunning announcement that they were dropping the development of the Palm WebOS and would be spinning off their PC business.  The news was greeted rather harshly by the critics and the stock market as they have continued to batter the company since the announcement.   I cannot say I blame anyone as it seems a certain amount of ineptitude has taken place in the HP boardroom.  Why do you announce you are exiting the PC business but have no plan in place or buyer for the business?  They are killing their Tablet business only having recently launched it, not to mention they just acquired Palm a little over a year ago for $1.2 Billion.  Rather than die a slow death they have decided to immediately sentence to death the Palm, setting off a selling frenzy at Best Buy and pissing off a lot of consumers, who just bought one. HP has that look of that all too often used phrase, ” A deer in headlights”.

For starters I don’t think this is necessarily a good thing for the United States as if HP exits the PC business it is likely to go over seas, namely Asia.  I guess I am surprised they just did not follow the IBM model and create a Lenovo competitor. But if you think back in the day there were a lot of US-based PC companies (IBM, Compaq, Gateway, Dell, HP etc..).  Now e we will basically be reduced to one: Dell.  I guess in today’s world it’s not surprising as anything that requires a manufacturing base eventually ends up in Asia.  But the bigger concern with Headquarters in Asia a lot of the R&D focus will move there as well and that will have ramifications to the US down the road.  With a higher education base emerging in these markets we are at the beginning if the Asian dawn – though some would argue this has been underway for sometime, in my view it is still very early in the game of shifting global balances of power.

The second big impact will be to HP itself as it seems to be operating as a rudderless ship at the moment.  HP has been, by enterprise standards, a revolving door of executives.  First we had Carly Fiorina who drove the acquisition of Compaq.  Then we had Mark Hurd, who was doing just fine until his sexual impulses got him in trouble with a reality actress. Finally we have the German Leo Apotheker, who unless he does something drastically different soon could be the next CEO to be shown the door.  This is a company that I used to hear Steve Ballmer place above all  others in the tech industry.  The company that Microsoft should try to emulate. Not such a good idea now. What I am sure is frustrating to shareholders is this is not technology issues dragging the company down, but complete ineptitude at the top of the company.  A fundamental lack of leadership. This, in the end, will have a demoralizing effect on the employees. More troubling will be if it starts to impact customers, where HP has always had strong entrenched relationships.

The third will be Microsoft.  On one had it loses a tablet/mobile competitor in the WebOS.  But much more significantly it loses a major partner in the licensing of Windows and Office.  This is a tentative time for the Windows OS.  Though it is still early there are emerging alternative options in the market place, that are more realistic than previous competitors such as Linux.  Google’s Android is a viable option because there are applications for the platform.  Whomever takes over the HP PC business would be wise to leverage this (on the flip side they would be stupid if they did not).  The Compaq/HP relationship extends over 25 years and was  a major reason that Windows was able to rise and take its existing place in the market.  This change will bring a level of uncertainty to Microsoft’s core business.  Microsoft right now could use a bit of stability in the marketplace with its existing relationships.  HP on the flip side will have to restructure a lot of relationships now that they are exiting the PC business, from Microsoft to all the suppliers of the parts that make up the PC’s.

The long-term ramifications of this, dare I say, titanic shift in the PC business is going to be an environment where countries with manufacturing bases will enter a world where they will increasingly look to develop and patent their own technology.  With the US PC business being reduced to Dell.  Another benefactor of this, on the plus side for the US, will be Apple as its monolithic technology stack had a window to further enhance its current momentum, while the rest of the industry waits for the fog to clear.  HP,a s far as anyone can tell, is focused on competing against IBM in the services business.  But where IBM always seemed so clear, HP of recent times has appeared clumsy and unfocused in what it is attempting to do, in what it is attempting to become.

In the end handling transition in the technology sector is challenging and it requires some long-term vision to handle those challenges.  As fast as technology moves if you don’t have along term vision as to where you are headed you can carve a very bumpy path for yourself.  You end up with a lot of stat and stops and find your self changing direction and positions often, much to the confusion of the end customer.  HP fins itself in tha position today and as observers we are all left to ponder, “hey HP what are you doing?  Where are you going”.  What we seem to be getting back as answers or non answers is a deer in headlights syndrome.  The problem with the syndrome that no one ever seems to contemplate is that the deer usually dies.

Good Night and Good Luck

Hans Henrik Hoffmann August 26, 2011

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