HP’s grand vision
HP needs to transform itself if it is to avoid becoming obsolete
Aug 27th 2011 | from the print edition
WHEN the board of HP, the world’s largest computer-maker, unveiled plans to restructure, it expected the company’s shares to suffer; but not to crash by 20%. HP’s bosses thought investors would love their plan to spin off the firm’s low-margin personal-computer (PC) business, but be wary of their plan to buy Autonomy, a British software-maker, for a handsome $10.3 billion. In fact, they hated both ideas. On August 19th, the day after the announcement, they wiped $12 billion off HP’s market value.
One problem was that the announcement left unclear what HP wanted to do with its PC unit and why exactly it intends to pay so much for Autonomy. Another factor was that many of the firm’s shareholders are short-termists, who were scared away by lowered revenue and profit forecasts. But the big problem is that Léo Apotheker, HP’s newish boss, is taking a huge gamble. He is trying to follow the example of IBM, by reducing HP’s dependence on hardware and pushing up into software and services.
To grasp what HP has in mind, one has to understand the two main currents in the IT industry. First, nearly any new technology quickly becomes a commodity that is easily copied and hence not very profitable. This is why IT firms are always trying to move “up the stack” into software and services, where margins are higher. Second, the biggest IT firms typically control what is known as a “platform”: a digital foundation on which others build their products, such as Microsoft’s Windows. This allows them to capture a disproportionate share of the industry’s profits.