Léo Apotheker has Hewlett-Packard positioned right where it needs to be.
It's been a little more than a month since Hewlett-Packard's new CEO, Léo Apotheker, stood up in front of financial and industry analysts and laid bare his plans for the new HP he inherited from the muck and mire of Mark Hurd's untimely departure. In that month, the economy has continued to recover, and HP's stock price has failed to follow suit. Meanwhile, pundits have been decrying the new strategy, second guessing key appointments, continuing to speculate that HP wants to buy SAP, and otherwise conducting themselves as if Léo's HP is doomed, new ideas and new leadership notwithstanding.
This is more than just healthy skepticism; there's a lot about the new HP that isn't reflected in the consensus opinions of both the punditocracy and the market. On the assumption that a little clarity might enlighten and inform, here's my take on why, if I were to break my golden rule and buy tech stocks (my golden rule involves, among other goals, steering clear of SEC investigations), HP would be the one to buy.
First and foremost, HP's assets are beyond compare in many domains. It's number one in printers, PCs, and servers, but the domain that makes the most sense moving forward is the convergence of the enterprise and consumer markets. As this convergence gains strength, there are only two technology companies that have a brand that's equally strong in both areas: HP and another company you might have written off lately, Microsoft. Not Apple (though it's emerging as the anti-establishment enterprise brand), not IBM, not Oracle, not SAP, not Google, not Salesforce.com.
And not, perish the thought, Amazon, which gave me rare bragging rights as a pundit by performing as I predicted two years ago when it proved unable to provide enterprise-class service to its cloud customers. More on this delicious example of schadenfreude in a moment.
While brand isn't everything in all markets, where enterprise and consumer markets converge, brand power is what will win the day. Having a brand that commands respect and positive opinions will be an absolute requirement for the company that wants to tap into the power behind that convergence.
This is why the recent appointment of a new chief marketing officer, Marty Homlish, is so important to HP. When I first met Marty, shortly after he assumed that role at SAP ten years ago, he forthrightly admitted he didn't know the enterprise software market, having been at Sony for 15 years. Today, not only can Marty no longer make the same claim, but those 15 years at Sony, instead of serving as a self-effacing liability, are now a key asset in the role he gets to play at the new HP. This is a rare opportunity to build a rare convergence around a single brand, and Marty is one of the few marketing execs who can legitimately claim to know both sides of the opportunity equally well.
This convergence of consumer and enterprise is huge, one of those only-a-few-times-in-a-generation inflection points. The trend is dictating software and hardware design, development and go-to-market strategies, business model and business processes change, and consumer and enterprise user behavior. Staying on top of a trend that's moving this fast and making this many waves is non-trivial and, indeed, having a foot in both camps is a distinct advantage.
Adult Supervision Is What's Needed
Being a little old school, particularly on the enterprise side, is a key advantage. HP, is uniquely positioned to capitalize on this because convergence requires the adult supervision that's lacking on the consumer side: Apple's anti-establishment approach in the enterprise, along with the Google/Android gang's enterprise play, pose some massive problems in terms of IT security and standards. The same goes for the use of social collaboration tools and on-demand services like Gmail and Amazon's EC2. As these consumer devices and services proliferate in the enterprise, how a company ensures that its IP isn't leaking out the door, or its employees aren't violating SARBOX, HIPAA, EU privacy regulations, etc., or its service levels are unserviceable, becomes a major problem that the likes of Apple, Amazon, and Google can't understand and won't solve.
Long-standing, enterprise-savvy players like HP get it, and know how to provide grown-up service and support for these nascent technologies. And while this convergence is so new that we don't even know what the processes that drive it necessarily are or will be, HP's position of enterprise strength, as well as excellence in key consumer endpoints like PCs, laptops, and printers, gives it much better street cred than its erstwhile enterprise and consumer competitors in terms of making convergence a safe, serviceable, and profitable enterprise.
The cloud has a similar need for adult supervision, as Amazon has so starkly shown us, in the form of managing the convergence of customer choice and technological progress. This is more than just a matter of SLAs: "End of software" cloud companies like Salesforce.com like to enforce on-demand orthodoxy (Thou shalt be on-demand and multitenant or be damned to eternal technological obsolescence) despite serious and important differences in customers' business and security requirements. HP's strategy for the cloud--a strategy, admittedly, that needs to be fully realized before it can be fully judged--is to eschew imposing technological and business model orthodoxy in favor of support for whatever deployment modality the customer requires. On-premise, on-demand, managed service, hybrid: It's up to the customer, not the interpretations of technology trends by charismatic entrepreneurs, to determine what makes the most sense for the market.
Server Market SplitsvilleJust because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.