Please also see our regular posts giving ITCandor’s assessment of HP’s financial results, product announcements and CSR approach.
HP’s annual analyst meeting took place in San Francisco this year and followed a day in which HP’s senior management spoke to the investment community. It wasn’t just because of the warm up, but due to some careful planning that Léo Apotheker’s first of these big meetings flowed coherently throughout the conference. Each presenter used the same strategy and summary (‘Everyone On – seamless, secure, context-aware experiences for a connected world’) slide during their pitches and, although not all presenters included them, HP has sized multiple market opportunities for each division in financial terms for 2013. No doubt there are also targets for each division to meet in 2012 and 2011.
HP’s senior executive team – old and new alike – clearly sing from the same hymnbook, making it far less philosophical than most other big suppliers. DreamWorks’ CEO Jeffrey Katzenberg was the only external speaker on the first day of the conference. His company is one of HP’s favourites – hardly surprising given its use of HP’s Cloud rendering services, of IPG to turn many back office processes ‘paperless’ and ESSN to swap out its Cisco network for HP.
The meeting started with a corporate video involving a clip of drug authentication in an African setting – a CSR topic, musicians mixing songs over the Internet, as well as families using technology and ‘smarter cities’.
Léo Apotheker’s ‘Everybody On’
Léo noted that it was now 4.5 months since he took over as CEO. As you’d expect he ran through changes in technology usage, boasted about HP’s achievements and talked up its Cloud strategy and latest acquisition. Highlights included:
- HP ships 2 printers and 2 PCs every second of the day, which creates an installed base for attaching other products and services
- Looking to the future it is incorporating WebOS into PCs, printers, smart phones and tablets – Léo believes HP can ship 100 million of these in total every year
- It sees data centres moving from a ‘traditional IT’ to a Cloud stack, addressed by 3 elements in HP’s strategy – 1) Cloud, 2) connectivity and 3) the software which unites them; HP will launch Cloud services for its customers – in hybrid Cloud implementations for instance it can provide data centre monitoring as SaaS
- HP announced its intention to acquire Vertica on Feb 14th; which will lead to the creation of a branded HP analytics appliance very quickly; Vertica specialises in handling structured and unstructured data (‘Big Data’), offering Cloud-scale real time analytics; the demonstration Vertica system had 192 cores in total, which makes HP a stronger competitor to IBM, which has been focusing on analytics as a high-end workload for at least a year
- Léo also talked about Security as an opportunity for HP (it is the 5th largest Security vendor in the world according to him) and also about the CSR work the company is doing in Nigeria and Ghana to combat the $75 billion market for counterfeit medicines
Léo handled questions from the floor very confidently as you’d expects. ITCandor asked him about the potentially negative effect of the adoption of Cloud Computing on HP’s revenues from Professional Services; he responded that HP would continue to see good opportunities in that area for a number of years. Interestingly he also talked about a strong debate within HP about the term ‘prosumer’, for which they are investigating alternative terms and definitions. He became very slightly dismissive of a question about comparisons with other vendors, saying ‘judge us by what we do, don’t compare us with anyone else’.
Cloud Computing Is a $143 Billion Opportunity For ESSN in 2013
Shane Robison and ESSN’s head Dave Donatelli presented Cloud Computing – the biggest strategy at HP at this year’s conference. Shane gave an overview of HP’s platform services and announced that the company would launch its own IaaS offerings in compute and storage areas this year, while moving on to PaaS and partner offerings next. Dave talked up HP Matrix’s success – describing it as having had ‘thousands of installations to date’ (not a very firm number for researchers unfortunately). He also said that Cloud Computing had been assessed as a $143 billion opportunity for HP in 2013.
Dave and his team went on to provide an extensive overview of ESSN’s business on day 2 of the conference in which HP demonstrated that it is building on its Converged Infrastructure messages of 18 months ago to build three types of Cloud Computing for enterprises, service providers and independent Cloud suppliers. Of course it was particularly keen to push its new network expertise acquired along with 3Com and what it believes is its initial success in taking market share from Cisco.
PSG With WebOS Will Challenge Apple
We’ve been quite critical of HP’s failure to compete effectively with Apple over the last year, so it was reassuring to see Todd Bradley present the plans PSG has to use WebOS (acquired along with Palm last year) to build more connected, synchronised and attractive user experiences. There’s no doubt the HP has the most massive PC business of all, which is supported by 145k sales partners, 210 service providers and 185k retail outlets according to Todd.
Todd talked up HP’s ‘unique ecosystems’ approach to the connected world before showing a video including its Pre3 smart phone, Veer and Touchpad tablets.
Sachin Kansal then played an excellent watered-down version of Steve Jobs, giving us ‘sneak previews’ of the features and functions of WebOS around a mock up of his own home. While being developed WebOS has been designed to include social media apps from the start. HP also has a deal with Amazon for its Kindle app and libraries which were shown working on the Touchpad. Sachin also showed it running Citrix’s Web Receiver for self-service streamed business apps.
Steve McArthur took over the presentation highlighting the Cloud-aware aspects of WebOS. He also showed the ‘touch to share’ aspects of the platform where one device can synchronise its contents wirelessly, quickly and ‘seamlessly’ based on its Synergy software which we take to be an automated content management system. He also talked up its excellence as a gaming platform and stressed the importance HP places on software developers for WebOS.
For us it’s clear that HP needs to change its approach to begin to compete with Apple in the consumer device area. They hadn’t mentioned it so ITCandor asked a question about ‘the elephant in the room being a fruit’. Todd’s answer is that HP now has a compelling story, which we agree with as long as it launches soon and focuses on taking direct charge of the ecosystem.
IPG – Connected Printers, On And Off Ramps To Digitised Workflows
Vyomesh Joshi (VJ) has been head of IPG for many years. During that time the group has consistently delivered highly profitable business, especially in the supplies area where ink jet ink, if measured by weight, is notoriously more expensive than gold. He stressed a number of IPG developments which link in with HP’s overall strategy. In particular:
- For the last 18 months HP has shipped 5.6 million printers (all those priced higher than $99) with network ports, making them ‘Cloud-aware and Web-connected’; as such they can play a good role in the development of services; VJ pointed out, for instance that the Hilton in which the conference took place, had HP wireless printers
- VJ sizes IPG’s opportunity as $292 billion in 2013, including $55B for content digitisation, $62B for retail publishing and managed print services and $175B for printers and supplies
- IPG’s existing Cloud services include Snapfish which has 89 million customers in 32 different countries and will continue mainly to use HP private Clouds to deliver its services
- VJ sees a big opportunity in digitising the 52 billion pages printed each year; at the moment only 10% of these come from digitised (as opposed to analogue) processes; MFPs have a strong role as ‘the on and off ramps to digitised workflows’
During his question and answer session VJ said that he saw no conflict of interest between eliminating printing for some organisations (illustrated by customer DreamWorks new paperless back office processes), while taking over massive printing activities through digitising analogue process for others.
HP Software Focuses On Security
Bill Veghte (only 9 months into HP) and Tom Reilly (ex-CEO of the acquired ArcSight) talked to us about Security, which is its key strategy. In particular:
- Bill mentioned that Security had become a key issue in each major architectural transition – when mainframes gave way to client/server and now, when client/server is giving way to Cloud Computing
- He noted that hackers intentions had changed over time from wanting a) fame, to b) fame and fortune to now c) causing widespread disruption – citing the disturbances surrounding Wikileaks at Christmas
- He highlighted the increasing inability many IT shops have to act in the face of users’ desire for access to corporate applications; HP will help by unifying the security layers and integrating them with IT management applications for CIOs
- Tom noted that HP now had annual revenues of $1 billion from Security software, while highlighting the extra resources the company has from the acquisition of ArcSight, Fortify and TippingPoint
- Tom argued that most Chief Security Officers (CSOs) don’t know what their organisation’s attitude to risk is, or how secure their organisation is and yet it is important; he used the example of ensuring patient data privacy when handling medical records around from doctor to admin, to insurers and others
- While IT metrics such as MTBF, Uptime, QoS and TPS form SLAS in IT operations – there’s nothing similar in Security yet
- In response HP is building a suite of tools to automate Security tools and integrate them with IT
Bill sizes the opportunity for HP Security software as $23B, which he defines as the crossover between IT Security ($87B) and the market for governance and risk services ($72B)
Overall we note that Software has not been a standout in HP’s most recent financial results, so perhaps it is more than a coincidence that these two speakers were relatively new to the company. As Léo joined HP from SAP he will, no doubt, be very interested in improving results here.
HP Services – Instant-On Enterprise, Industry Expertise And Applications
It was great to hear from Ann Livermore about HP Services. Ann has been heading up this business for a long time and the tightening up the company’s Converged Infrastructure and Cloud Computing offerings add a firm platform to build on its current success. She provided an overview of HP’s current capabilities and success alongside its opportunities. In particular:
- It had revenues of $35B in FY2010 and 200k staff
- HP’s specialists in clued 5k in networking, 6k in high availability, 16k in Microsoft environments and 12k in ITIL practices and, although she gave no number, claims that no company has more VMWare experts
- She predicts that with Vertiga will go beyond appliances to analytics services at the industry sector level
Sean Kenny then took over the presentation talking about HP’s industry sector services. In particular:
- He outlined the success HP has had in the US with medicare and medicade services, with customer references such as the State of Alabama, VNS NY and State of Georgia
- HP will build its expertise beyond the 5 it currently services (Manufacturing, Finance, Government, Media/Communications and Retail)
- Although most of his examples were from the US market Sean also mentioned the success HP was having in addressing the Health sector in China
Over all we believe that HP is less focused on industry sector business than IBM, which can demonstrate long term commitment to Retail through its Retail Stores Solutions or Banking through its mainframe activities. However the standardisation of HP’s architecture, infrastructure and management software will give it a stronger platform than before.
HP Is Strengthening Its Go To Market Activities To Support Its New Strategy
Tom Hogan, Bruce Dahlgren and Stephen DeWitt outlined HP’s Go To Market and sales capabilities and changes, including the opening of its new Sales University in Plano Texas in which 10% of its sales force have already attended despite being opened only in December. There was a clear enthusiasm for partners, of which HP has a total of 150k, accounting for $72B revenues. It has opened three ‘Mega Centers’ in the Americas, which is helping the company reinforce its brand with SMB customers. It claims its relationship with Telecom carriers is now more ‘intimate’ than before and that HP is building its portfolio with them.
Some Conclusions – HP Has Simplified Its Strategy To Maximise Its Revenues And Profit
We can’t remember a time when HP enunciated its strategy as clearly as this. Each group’s individual approach has different aspects. In particular:
- ESSN embraces Cloud Computing, proposing a new architecture, although its customers can continue with more traditional configurations if they wish; the test will be if its standards based Converged Architecture is relevant – especially in heterogeneous implementations and whether the expensive investment in resources from which to launch its own SaaS, IaaS and PaaS services prove attractive
- PSG is on to a winner with WebOS, proposing some products which should compete more strongly with Apple – especially in the extent to which all PCs, printers, smart phones and tablets will be synchronised; however it will take many months before HP gets all the wood behind this arrow and Apple’s astonishing growth has been going on since 2008; how quickly HP executes will be the big test here
- IPG has the clearest plans to extend its business to adjacent markets and is already offering Cloud services, managed print services and high margin commercial printing; it is extending beyond (but wisely not suggesting a move away from) its highly profitable supplies business; in targeting the digitisation of analogue printing processes is daring, but it might find it more difficult than it thinks to maintain high profitability here
- HP Software is now able to target Security through its acquired businesses; this is a genuinely new approach; the test here will be the extent to which these diverse offerings can be pulled together coherently and whether customers are prepared to accept HP as an application and tools supplier: it will need to demonstrate that Security can be applied as a policy across HP hardware environments for this to be fully successful
- HP Services will go through a transformation as a result of these strategic changes and it may suffer lower revenues from traditional areas such as Outsourcing; its vertical market approach will benefit from a common architecture, but it will need to invest in deeper resources to compete more successfully with IBM here
Over all we are impressed with its messages. The real test will be in their acceptance by its customers. Not all of them will be as pro-HP as DreamWorks and the other reference sites it spoke about at this meeting. It is becoming more vertically integrated through its narrower harmonised strategy, but still insisting on open standards, which is refreshing.
As always we will continue to track the company’s revenues and announcements and customer reactions to evaluate the success of its new strategy in coming quarters.