At Hewlett-Packard Co.'s annual customer conference this week,
lab-coated technicians showed off plastic models of memory chips
and photonic networking gear beneath rows of brightly lit green
rectangles.
The rectangles are the symbol of a new company, HP Enterprise,
that will blink into existence when H-P splits in two on Nov. 1. HP
Enterprise will target suit-clad corporate buyers, such as those
milling about the conference in Las Vegas, while the second
splinter, HP Inc., will push PCs and printers.
The hardware on display is part of H-P's plan to build a 21st
century supercomputer. The device, called the Machine, is a big bet
on the future of computing. It is also a bid to differentiate HP
Enterprise from competitors such as Dell and Lenovo Group Ltd. The
Machine uses a new form of memory called a memristor, wired using
ultrafast photonic fibers instead of conventional copper wires. But
current operations won't be the sole source of innovation as Chief
Executive Meg Whitman shores up HP Enterprise's offerings to keep
pace with corporate buying habits and relentless
commoditization.
H-P is back in potential acquisition mode after the disastrous
$11 billion tie-up with Autonomy Corp., Ms. Whitman said in an
interview Wednesday. And the company recently booted up a venture
investment program to gain access to hot Silicon Valley startups
"that have a chance to maybe make big changes," she said. "And so
maybe we buy them; maybe we make an investment; or maybe we just
incorporate them into our solutions."
Ms. Whitman hinted at acquisitions in data storage and
next-generation data-center equipment.
"On the hardware side, just as we bought Aruba, there may be
some smaller storage companies that we're interested in," she said.
"There may be some converged infrastructure," referring to
matched-and-tuned packages of hardware.
At a time when server vendors are reeling from Asian competition
and cloud computing, HP Enterprise will be resolutely committed to
selling rectangular boxes. With 27% of the server market and $3.9
billion in fourth-quarter 2014 revenue, the current H-P is the
world's top server vendor according to research firm IDC. It ranks
second in storage, behind EMC Corp., and sells a significant amount
of networking gear, too.
"We sell a lot of boxes," Ms. Whitman said. "Think about it.
When you go into a data center, there are a lot of boxes there. And
with the explosion of data, frankly, there's more demand for
compute. Not less."
The problem for HP Enterprise is that competition to satisfy
that demand is in overdrive. Many of H-P's boxes—the ProLiant line
of servers, for example—are caught in a margin-shearing race to the
bottom. H-P competes with not only traditional rivals such as Dell
Inc. and EMC but also cloud-computing providers such as Amazon.com
Inc. and no-frills Asian server manufacturers such as Quanta
Computer Inc.
As a result, H-P is a company under siege. Revenues were down 7%
during the company's most recent quarter, ended April 30—the 14th
decline in the past 15 quarters. Its storage business was down 8%,
high-end "business critical" servers dropped 15%, and networking
gear dropped 16%.
The one bright spot was the company's Intel-based server
business, where revenue grew by 11%, but where margins are razor
thin.
To reverse the trend, H-P will need to deliver new features and
move into new markets. There are signs that this is beginning to
happen. Last month, H-P closed its $2.7 billion acquisition of
Aruba Networks Inc., to become a major supplier of the
wireless-networking equipment used by mobile phones and tablets in
corporations.
The company also will need to develop its cloud-computing
services. Ms. Whitman's plan is to focus not on the public
cloud—computing resources offered on the open Internet, a market
dominated by Amazon and Microsoft Corp.—but on the company's Helion
software, which allows customers to set up private-cloud systems on
H-P's boxes.
"H-P has a good brand," said Toni Sacconaghi, an analyst at
Sanford C. Bernstein & Co. "They have better scope than most
companies, a full range of products and solutions. And that's
ultimately what they're going to try and use in the marketplace to
gain advantage."
When H-P divides, the two companies will be better able to focus
on the separate business and consumer markets, Ms. Whitman said.
"Over time, they will evolve to different cultures, but the core
values will remain the same," she said.
H-P is also going to face $3 billion in restructuring costs as
the two companies spin off, the company disclosed during its latest
earnings call. It is already in the middle of laying off 55,000
employees, with more to come. As head of the new HP Enterprise, Ms.
Whitman will be fighting off her challengers with a smaller
army.
Write to Robert McMillan at Robert.Mcmillan@wsj.com
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