The new HP Strategy

Last week we read that HP wants to get out of its Tablet business which means the Palm acquisition was a big failure. HP also said that it wants to sell off its PC business due to poor margins, even though its revenue contributed around $40B.  Humorously, Michael Dell twitted that the spin-off unit may be called Compaq. It is only ten years back that Carly Fiorina fought a big battle to acquire Compaq at the extremely high price of $25B.

It seems Leo Apothekar, the new CEO wants to change HP to a different company centered around software and services. Last week it announced the acquisition of software company Autonomy, a British firm for $10B. Such moves in theory will convert HP to become more like IBM and Oracle. Still HP has a big printer and storage business besides the server hardware business.

The stock market did not like these drastic moves and punished HP with a big reduction in value (around $12.5B). Speculations also sprang up that at such low value Oracle might make a bid for hostile acquisition.

On the software front, HP has always focused on systems management via its OpenView software. Then it acquired LoudCloud and Mercury Interactive, all in data center management business. Its recent acquisition of Vertica is supposed to enable data warehousing appliance offering to compete with Oracle’s Exadata, IBM’s Netezza, and EMC’s GreenPlum. HP has no presence in the application nor the middleware market. Hence its software story is still not very holistic.  It’s announcement on cloud computing is yet to provide clarity.

With the PC division gone, its revenue would be $80-$90B from the current level of $126B. Can it make up the gap from the software license revenue?

Time will tell how the new strategy would make HP a stronger company.


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