A major push further into Cloud Computing is among the solutions on offer from Hewlett Packard CEO Meg Whitman as the firm reels under its biggest ever quarterly loss.
HP this week posted a quarterly loss of $8.9bn after a gigantic write-off of value of its services division, including the former EDS. The US stock market took the news calmly. It had been flagged up as coming and in any case the recently appointed CEO Meg Whitman has made no secret of the pain ahead in turning around a company that has been rudderless in recent years.
“There are a number of headwinds we face that fall into 3 areas: macroeconomic and industry trends as well as challenges in HP's execution,” she said this week. “I've talked before about the tectonic plate shifts in the industry that are occurring: Cloud, mobility, virtualization and more. All are impacting the way customers, both enterprise and consumer, are leveraging technology. This means HP needs to shift its portfolio. This will require some trade-offs and some time.
“We have great opportunities in front of us, but we also have a number of challenges. Some of them are macroeconomic, others are industry trends and, frankly, some are about HP's execution. Make no mistake about it, we're still in the early stages of a turnaround. There will be challenges ahead that could create some variability in performance. But I'm confident in our ability to work through them and get to where we want to be.”
The firm’s push into the Cloud Computing space is one priority. “In the area of Cloud and information, we introduced a number of innovations, including an enhanced version of our flagship product, HP CloudSystem. CloudSystem enables enterprises and service providers to create private, managed and public cloud environments. We now have almost 750 unique CloudSystem customers,” said Whitman.
“We also announced HP Converged Cloud services for airlines, a hybrid delivery approach to the Cloud specifically designed to help airlines create new revenue streams, deliver better service to their customers, lower their costs and increase productivity.
“And we released our first public Cloud services, backed by an industry-leading Service Level Agreement. Built on proven HP technologies, HP Cloud Services also leverages OpenStack, providing a foundation for one of the most open and scalable set of Cloud services in the market.”
Dragged down by services
But the firm’s wider services arm is still a major drag on the company. “I've said from the very beginning of my tenure at HP that this was a business that was in need of a turnaround,” said Whitman. “Here's the things that we need to do to fundamentally get this business on a better track.
“First is, we've got to change the accountability model. Somewhere along the line, the account basis of accountability with the account leader got diffused across the organisation. And in the end, the person who leads these accounts needs to be in charge, have control of revenue and control of the costs.
“We then need to shift the business mix from some of the low-end services that, frankly, EDS was founded on to where we want to be, which is profitable ITO, the Strategic Enterprise Services, in Cloud, in security, in information optimization. And over time, that will shift the margins in the way we want to be and will, frankly, add a lot more value to our customers, which will in turn allow us to sell in more hardware and other products into those very important top 200 accounts that account for a big chunk of that revenue.
“So we're on a journey here. I feel more confident today about the paths forward in that business than I have any time in the last 12 months. But make no mistake about it, we've got a little ways to go here,” she concluded.
A long way to go
It will be a long journey, argued Anthony Miller of research house TechMarketView. “The strategy seems fine – but it will need a really good management team under acting ES chief, Mike Nefkens, to make radical changes to the ingrained EDS culture,” he predicted.
“In many ways, HP is facing the same ‘mid-leap’ crisis that has befallen Dell, realising too late how fast the market was moving (be it products or services), and then finding it difficult to catch up,” he added. “HP has the bigger challenge, though, as there are many more moving parts. Whitman will need only the finest leaders at the top of each of HP’s businesses if she has any chance to get all the parts moving in the same direction.”