Number 106 (Update of Volume 9, Issue 3)

HP considers letting Fiorina manage less

Both Forbes and the Wall Street Journal were reporting on Jan. 24 that HP is thinking about giving CEO Carly Fiorina less direct management of HP’s business. HP held its annual planning meetings Jan. 12-15. The WSJ reported that “people familiar with the matter” said the HP board talked about giving three HP executives more authority and autonomy over key operating units.

HP’s CEO isn’t facing a vote of confidence, according to the WSJ report. But board members believe she should be managing less of the day-to-day activities for the company, which continues to struggle to increase its share value and meet rising competition in rollicking markets such as PCs.

The company has already positioned one of its top executives for increased responsibilities. VJ Joshi was named executive VP of Imaging and Printing, taking over PC leadership from retiring exec Duane Zitzner. Joshi’s name was one of three mentioned in a reorganization advisory from Standard & Poor’s Equity Research. The analyst firm, while giving the HP stock a “Hold” rating, said that Ann Livermore, executive vice president of Technology Solutions, and Mike Winkler, executive VP of Customer Solutions and Marketing, are being considered for positions of more autonomy.

HP issued a rare denial on the same day the WSJ report appeared. The WSJ report was “speculation,” according to an HP spokesman. HP didn’t comment on the Standard & Poor’s report about the reorganization. Fiorina, who’s presided over a 55 percent drop in HP’s stock price, consolidated executive authority through her office when HP named her as CEO. Within two years she was eliminating HP business lines, including the HP 3000, a key step to making her hands-on style possible.

The WSJ report that HP refuted stated that the board directors are concerned over the company’s PC business, which has been delivering slim profits while it competes with Dell. Moves to give the PC group more autonomy would let HP’s units react faster. The WSJ said that Fiorina “initially had resisted the moves, but by the end of the [planning] session had agreed with directors and was on good terms with them.”

For Livermore, who now heads up the business arm that covers HP 3000 operations as well as the HP Unix server group, a reorg to greater autonomy would be something of a return to a prior model. HP named Livermore as President of its Business Customer Organization in 2000, one of four president’s posts at the company in that year. HP scrapped the multiple-president idea in the spring of 2001. Zitzner then became the leader of the HP group that included the HP 3000, and six months later the company announced it would step out of the HP 3000 market.

New integration server emerges for HP 3000

Red Oak Software (www.redoaksw.com) announced the availability of its HP Integrator product, software that integrates HP 3000 applications using an API and a run-time server module. The API “easily automates the steps necessary for bi-directional communication with the host system,” said a Red Oak press release. “Since access to all program logic and data is non-invasive, no changes are required to the host applications. The Runtime Server Module has been designed for fast, highly efficient and scaleable execution of those critical HP transaction integrations that require superior performance.”

Red Oak is a privately held firm new to the HP 3000 market, but one with a track record of developing since 1999 what the industry calls “programmatic integration servers.” HP Integrator is the latest addition to Red Oak’s portfolio of Application Integration Framework products; other solutions have been offered for IBM mainframes, Tandem applications, and Unisys apps. The company also offers a .NET Bridge adapter for the HP 3000 Integrator.

Red Oak said that HP Integrator can integrate HP 3000 applications with business integration systems, application servers, IVR systems and any other Java system. The API and Runtime Server Module are written in Java and implemented on Linux, Unix or Windows platforms. HP Integrator communicates with HP 3000 applications via the messaging event protocol. The solution also includes a built-in terminal emulator for HP 3000. HP Integrator Development Servers start at $15,000; Production Servers start at $25,000.

HP unveils new midrange Integrity power

HP introduced new models of its Itanium 2-based Integrity servers, further evidence that the company’s alternative to HP 3000s will include more evolution beyond HP 9000 servers. The newest models give HP more ways to accomplish the goal of making half of its business server sales consist of Itanium-based purchases.

IDC analyst Jean Bozman said in an HP-sponsored report that the company is using Itanium as its destination for server customers. “As HP begins to leverage the widely available processor technologies,” the IDC report stated, “HP servers using RISC processors will be transitioning to Itanium processors.”

The newest members of the Integrity line, HP’s servers powered by Itanium, start as low as $5,116 for a low-end rx2620 two-way model. A more likely match for HP 3000 shops would be the new rx7620 model (starting at $18,995) that can accommodate 16 CPUs. The HP 9000 models the company is now selling to HP 3000 customers — largely the rp74xx systems — can be in-chassis upgraded to the rx7620s.

Those upgrades are key to another HP goal: doubling its Itanium business within a year. HP announced that its Itanium business topped $1 billion in fiscal 2004. The sales total marked the first above the billion-dollar mark. When the company transferred its Itanium designers to Intel and pledged $3 billion to Itanium-related research and marketing last year, HP said it would boost its Itanium sales to half of all its enterprise server purchases by the end of 2005. The latest data shows that HP sells about one out of every five Business Critical models with Itanium processors.

The top end of the Integrity line also got a refresh with the newest Itanium 2 processors that have 9MB of high-speed cache memory, an increase from the last generation’s 6MB. These Superdome servers start at $185,252 and can be scaled as high as a 128-way system. Both Superdome and the rx7620s will require less space because of the new Itanium 2 mx2 design, which can fit two processors in a single socket.

Apple rollout triggers analyst’s HP downgrade

HP wasn’t the only systems maker using January as a launch pad for new systems. When Apple Computer introduced its latest Mac Mini model, a $499 desktop system smaller than the thickest of hardback novels and sold without keyboard or monitor, one stock analyst said the computer was a shot across HP’s bow pushing into the company’s future.

According to Morgan Stanley's analyst Rebecca Runkel, “If Apple does release a sub-$500 Mac that can capitalize on its large iPod customer base this year, HP is most at risk — with its 55 percent market share in the US consumer desktop market," she wrote in a research note.

Runkel downgraded the HP stock, and the shares fell more than three percent the next day. “Barring any sort of major organizational overhaul, HP appears set to be increasingly squeezed between stronger players in a mediocre demand environment,” she said.

HP’s been beefing up its consumer efforts for several years, building its trade identity as a printer and camera maker to get into large-screen TVs and offer the HP Digital Entertainment center. But costs in this PC group run higher than any other HP unit, a drain on profits that puts pressure on the traditional IT units at HP. Anything that impacts HP’s consumer push will have ripples in its ability to advance IT choices. For example, HP has no plans to offer Linux support for those mx2 Itanium processors the company rolled out one week after the Apple announcement.

MIS-centric customers won’t see what the Apple fuss is about. Keeping IT happy has been the measuring stick for desktops up to recent years, something Apple has failed at for the most part. Now there’s a much more relevant measure, the consumer. The IT market is pretty saturated by comparison, because businesses buy computers with plans for their use -- and try to drive them right into the ground, if they can. The HP 3000 lets them do that kind of driving, more so than Windows and Unix alternatives. Few shops would try to leave such a commodity-class critical machine running for five years without an OS change or hardware upgrade. But HP 3000 shops do this kind of over-driving all the time.

The much bigger consumer market, on the other hand, doesn’t want to drive very much into the ground. Most TV shows with commercials survive on ads from vehicle companies, firms who survive on the desire for something new. People trade out cars, cameras, TVs on a regular basis. That’s where technology industry players like HP and Apple will be taking knowledge -- into the homes, where people will be creating things that represent who they really are. That's their photo album, their music play lists, their home movies, and the songs every garage band creates.

The Mac Mini will tax Apple’s manufacturing in a way that its iPod has only begun to do. Apple will struggle to keep these things on the shelves -- and that's going to sap some profits out of the company. Especially if it remains dedicated to building something that turns heads like a BMW convertible does, but will now sold at the price of a Saturn.

HP’s got its challenges in the PC market, and now Apple does, too — someplace to spend the company’s $295 million first quarter profits. Apple’s shareholders seemed confident about spending those profits. In the day after the Mac Mini was announced, the market bounded Apple to a record price of $74 a share.

Apple’s Mac Mini might not displace many Windows systems in IT shops. But the signal that Apple is ready to compete on price can only bring a second front of pressure on HP’s consumer desktop dogfight with Dell. By working to keep a hand in so many markets — consumer products, IT, software, and services — HP’s reach could exceed its grasp.

Evolution to Integrity relies on Aries

HP is distributing a 26-page white paper on how to move PA-RISC applications to Integrity systems, a document whose largest part is 10 pages of notes on the Aries dynamic translator in HP-UX. The software allows HP 9000-based code to operate on HP Integrity-based systems by translating the HP 9000 code on the fly. A similar operation took place in early HP 3000 RISC systems using a module called the Object Code Translator.

HP’s white paper gives HP 9000 users guidelines on what to expect from such dynamically translated programs. Such a translation is in the future for every customer who’s committing to HP-UX, since HP has already said it will stop making PA-RISC systems — and the future of HP-UX only includes support on Itanium.