Number 86 (Update of Volume 8, Issue 7)

HP expected to meet expectations

HP's financial mavens set realistic expectations for the company's second quarter results, as the company came close to exceeding analyst projections for sales growth and profits for the period that ended April 30. Results became available late in the day of May 20. Like many companies, HP has taken to reporting its results using practices that are not generally accepted by the accounting community, so these non-GAAP numbers are sweetened in HP's favor by excluding expenses HP considers "outside our core business segment operational results." The GAAP results showed that the company which finished its fourth straight quarter as an entity merged with Compaq earned 22 cents per share in profits -- about 10 percent behind the profits in its preceeding quarter.

Nearly all of HP's businesses showed a profitable quarter. The only segments reporting a loss for the last 90 days were HP's investment operations and its Enterprise Systems unit, which makes and sells the HP-UX servers HP promotes as an alternative to the HP 3000. Even though HP 3000 business reportedly broke through the yearly sales quota during the quarter, the enterprise unit as a whole still reported a $7 million loss for Q2. It's a steep recovery for a unit whose losses have run as deep as $83 million over two years of red-ink quarters. HP continues to maintain that the enterprise business will regain profitability before fiscal year's end in October.

Analysts had higher hopes for HP than its GAAP numbers met. HP had to use its non-GAAP numbers to beat analyst projections of 27 cents a share in profits. HP did outpace the projections for sales slightly, bringing in $18 billion in revenue. But little of the sales growth could be seen outside of the company's print and imaging business.

HP reiterated its statement about saving money through the merger, pointing to $3.5 billion in reduced infrastructure expenses "on an annualized basis" that it's accomplished since last May's union with Compaq. The company said its 25 largest business contracts in the quarter represent a total long-term value to HP of more than $5 billion. The combined HP and Compaq have now booked a little over $35 billion in business in the first half of fiscal 2003.

HP does expect extra expenses in the next quarter for its business critical unit as it rolls out Itanium models and an earlier delivery of the last generation of the Alpha OpenVMS servers. "Although we're pleased with the progress of our enterprise business, we still have more work to do," said CEO Carly Fiorina. "The third quarter is going to be pretty important to getting Itanium into the marketplace." Its PC unit posted a modest profit of $21 million, its third straight profitable period. HP plans to eliminate more than 3,500 additional jobs during the second half of the fiscal 2003 year – and 1,200 will come from the Enterprise Systems group. Fiorina said "we've taken a lot of people out of this business already, approaching 6,000 people."

HP is stepping up efforts to reduce workforce and supply chain expenses. At the same time, its cash is up more than $2 billion from one year ago including long-term investments, and it's adding jobs in India to support its globalization strategies. HP also announced that it's implemented a company-wide pay raise on May 1, its first in two years.

P&G IT becomes one with HP

HP announced a 10-year, $3 billion services agreement with consumer products giant Procter & Gamble Co., a former stalwart of HP 3000 use. HP's outsourcing deal will affect 2,000 P&G employees.

HP pointed to the P&G deal as a calling card to get attention for the largest outsourcing contracts. But the company also reported there's serious price pressure on its services offerings, including support renewal prices. Customers are demanding shorter, more focused engagements in services, HP said.

"Industry analysts agree that HP is now on the short list for major outsourcing deals," said CEO Carly Fiorina. But customer support revenue was the leading source of revenue growth for HP Services in the most recent quarter, followed by integration revenue.

Migration update: Itanium to get latest HP-UX release

Customers who are looking to remain with HP's servers by migrating away from their HP 3000s will see another fork in the road for HP-UX releases. The company announced that it's going to release a Version 2 of its HP-UX 11i operating environment this summer, one engineered especially for Itanium servers. PA-RISC servers won't use Version 2, but a Version 3, expected for sometime at the end of 2004, will operate on both Itanium and PA-RISC servers.

Al Gillen, research director of IDC, commented in an HP press release that "moving to a new architecture usually creates numerous compatibility challenges and often forces customers to leave behind application software that they value. HP has addressed this issue nicely with HP-UX 11i v2 for Itanium processor-based systems, which offers near functional equality and binary compatibility to HP-UX 11i v1 for PA-RISC."

How much impact HP-UX will have in the marketplace by the end of 2004, when the two streams of the operating system merge, remains to be seen. Linux distributions have been ascendant in IT shops for several years now, and Microsoft and IBM remain highly committed to the Unix alternative. IT managers report that buying into the Linux environment returns them to a world of greater choice, since Linux runs on everyone's hardware.

"Unix -- Solaris, HP-UX, AIX -- is being dissed big time for being proprietary," said Scott Hirsh, a technical consultant at HP hardware integrator Logical and a 3000 NewsWire columnist. "So HP-UX and MPE are blood brothers because they only run on HP's hardware. Imagine! What goes around comes around."

HP says that HP-UX 11i v2 includes enough Linux compatibility to embrace Linux applications. "HP-UX 11i v2 also offers source compatibility with Linux IA-32 programs and binary compatibility with Linux for Itanium processors-based programs.

The comprehensive compatibility enables applications to essentially run without change on HP's Itanium 2-based systems, providing enterprise customers seamless integration and rapid deployment into their existing data centers and a clear, stable and easy-to-navigate bridge to next-generation Itanium and PA-RISC architectures.

HP began to use the term "evolution" rather than "transition" or "migrate" while outlining the future to 3000 customers at the latest Solution Symposiums. Presentations made it apparent that every customer using HP systems will be looking at some kind of change over the next three years, not just those who count on HP 3000s.

For proof of the evolution, just look to HP's new Web links for its 3000 business. The new hp e3000 web site is now available at
<http://www.hp.com/products1/evolution/e3000>. A direct link to the European page is
<http://www.hp.com/products1/evolution/e3000/europe/index.html>.

This site is part of the new <http://www.hp.com/go/evolve> portal. Older pages will redirect customers to the new site.


What's migration got to do with it?

The term migration might have been the first used in the 3000 transition story, but watching HP move away from it shows the real picture of change in a community that never embraced it with much gusto. While HP's own communications are now pumping up evolution, one of the prospective vendors of a 3000 hardware emulator says the term migration didn't apply to many 3000 customers anyway.

"Migration was never the right answer for more than maybe 10-20 percent of customers," said Gavin Scott of Allegro Consultants, after his pronouncement that the 3000 community looks more stable than it has in several years. "But migration is what HP was preaching from Nov. 14th onwards, and that affected a lot of people's thought processes last year. Homesteading has replaced Migration as the #1 topic of discussion."

"Since almost nobody is moving yet, it's hard to tell what direction they'll ultimately end up going in," Scott added. "But whereas last year people were at least facing in the migration direction, today they seem to be facing the "do nothing" (i.e., homestead) direction. Once they are forced to start actually taking steps, then they may yet head off in a different direction.

"Today homesteading may sound good because it's no work or cost at all for the most part -- but today you can still buy new 3000s from HP. Maybe people will start feeling more insecure next year, or in 2007."


Hype Watch: who's saying it's the end of life

Letters mailed to HP 3000 customers in Europe are wasting no time in announcing the end of the MPE world. While promoting the HP-Interex EMEA show being held this week in Amsterdam, the hyperbole was running high in a message urging 3000 customers to bolt to other HP platforms, but purchase a newer HP 3000 first.

The mixed message went out to customers in early May. "Time is almost up for HP e3000 systems," the letter read. "Production ends in October of this year, meaning you'll have to move over to a different platform soon to maintain the performance and availability of your data and systems."

HP reminded customers in the letter that "time's almost up" and that it's "legally required to share this vital information with your company's IT manager." The latter bit of information seemed to reflect the reports heard during the North American Solutions Symposiums that a surprising number of 3000 managers haven't even reported HP's end of support news to their senior management. Given the stretch of the timeline – the only systems that have reached the end of their useful life are a few early Series 900 models that didn't make the Y2K transition – perhaps keeping this kind of HP news to yourself is more prudent than it first appears.


3000 partners meet with HP next month

HP 3000 software developers are being invited to a three day meeting with their hardware vendor June 2-4 in California to review HP's plans for alternative platforms and its storage offerings. Some part of this conference was being delivered under non-disclosure status last year, a trend that will be more prevalent as HP shares information with its customers during 2003 and beyond about its future developments.

HP is likely to reiterate the details of its Transition programs away from the 3000 during the meetings, hoping to get more attention for deals that make moving to HP-UX servers and Itanium systems look more financially attractive. HP reported that as of April, no customer had registered their HP 3000 purchase to reserve dollar credits for trading in the servers later on for other PA-RISC or Itanium-based servers. This Investment Protection program was first announced in September, 2002.

Developers who belong to HP's DSPP partner program can now get a free release of the PowerPatch 1 of MPE/iX 7.5. It's only available as a requested release, by calling the 800 number included with the DSPP agreement number. HP is also shipping a subsystem tape with the release.