Global CIO: Hewlett-Packard CEO Hurd Shifts Strategy Toward Services
Six months ago, Hurd dubbed HP "the infrastructure company" but he now seems to be tilting toward services as HP's centerpiece.
Addressing Hewlett-Packard's annual meeting Wednesday, CEO Mark Hurd showed a chart depicting the operating-profit contributions from each of HP's business units, and the story it told underscores the huge marketplace transformation HP has undergone and hints at additional changes still to come.
"Probably the big thing this on this chart that I'll tell you about is the change in operating profit," Hurd said in his presentation to company shareholders in attendance. "When you look at that big segment called 'Services,' services is now 38% of HP's profit, now becoming the biggest segment in the company.
"That results a lot from our acquisition of EDS plus other progress in the company. It's very different from how it was four or five years ago where IPG [Imaging and Printing Group] was over 80% of HP's profits. So a big change in the company's position and segments," Hurd added.
That gives fair warning to all of you wags out there who for several years had a good run of being able to crack wise about how the only profit big ol' gigantic HP could ever make was on the sale of ink cartridges for printers. Time to put that knee-slapper out to pasture.
And don't get me wrong—Hurd still places a great deal of emphasis on the significance of HP's vast product line, spanning from netbooks to high-end servers and across the spectrum of networking gear and up and down the stack for infrastructure software.
As Hurd told the shareholders meeting, "Our goal is to have the strongest set of products and services in the industry. We think over the last five years we've built the strongest set of capabilities across the technology sector. Just to give you some context, we have spent almost $40 billion—that's four-zero, forty—billion dollars in the past several years on R&D or M&A—the two together have given us this sort of unique opportunity to put HP in a position where we think our portfolio is second to none."
The simple rationale for such breadth and depth is the corresponding market opportunity, Hurd said (and his comments are a verbatim transcript I made from the audio archive of the meeting):
"It's a big deal to us to be able to cover the entire IT market—it's about a $1.7 trillion market. HP's portfolio can now address $1.4 trillion of it. Today, even though our sales force has grown by more than 50% in the last four years—but just to understand, 50% bigger than it was just four years ago—we still only address $900 billion of the market."
Translation: Hurd is looking to hire lots more salespeople to close that $500 billion gap between the market for which HP's products and services can compete, and the bandwidth of the HP salesforce to reach all those opportunities. And there's no doubt that a big portion of what all those new salespeople will be selling is a range of HP services layered on top of its ubiquitous technology.
Hurd revealed his increasing focus on services on three specific occasions:
1) Very early in his presentation when he highlighted, as noted above, that services accounted for 38% of HP's 2009 operating profit;
2) When he described one of the significant new infrastructure products the company rolled out in 2009; and
3) In answering a shareholder's question whether Hurd intends to make HP a more-aggressive competitor in the booming smartphone/PDA portion of the market.
In the new-product description, Hurd said HP's BladeSystem Matrix as "basically a server-storage device and a network device all rolled up in one," adding that it can function as "cloud infrastructure in a box." And while cloud infrastructure can be a huge play for HP, the big challenge many CIOs are tackling right now as they devise their own cloud strategies have to do with the various services that bring that cloud infrastructure alive:
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