Hewlett-Packard’s announcement on Aug. 18 that it planned to abandon tablets and smart phones, and explore a possible sale of its PC business in favor of software and services led many on Wall Street to question the company’s grand strategy and future valuation.
But throughout the federal government, where the world’s largest IT company is also one of the two most popular providers of desktop computers, the three main questions on the minds of IT managers are: will a decision by HP to sell its Personal Systems Group (PSG) impact my agency? Will my HP desktop investment look dramatically different in the near future? And, should federal IT decision makers be nervous about HP’s drastic change of course?
According to interviews with HP executives, industry analysts and government IT professionals, the answers to each of those questions seems to be yes.
In response to Breaking Gov’s request for an interview, HP said in a statement that no decision has been made yet on the fate of its desktop business.
“We announced that we are exploring strategic alternatives for our Personal Systems Group and that the process could be completed within approximately 12-18 months,” said HP spokeswoman Rachel Decker. “We have announced no immediate changes to our existing PSG business and do not expect to before a thorough evaluation has been completed. Our existing PSG operations including manufacturing, support, sales and other operations currently remain in place.”
But is a sale of HP’s desktop business something that federal IT managers should be thinking about?
Absolutely, said Shawn McCarthy, director of research at IDC Government Insights. “That will indeed have an impact on federal agencies,” he said. “Dell and HP are the two most popular brands of PC in the federal government today. Agencies will need to make decisions on where they will buy their future PCs.”
But McCarthy added that such a change is not likely to affect the PCs that are already installed and he doesn’t anticipate a significant impact on existing warrantees or service level agreements for PC inventories.
From a business perspective, a decision by HP to sell its PC business would probably be a positive step in the right direction, said McCarthy. “In many ways, the PC market is highly commoditized, very mature, and waning. It’s not a bad decision for HP to sell off that division, if it happens,” he said.
But Amy Larsen DeCarlo, an analyst at Current Analysis who covers managed IT services, said if HP did sell its PC business customers would likely feel some pain in the short term in pre-sales and post-deployment support.
“I do think federal IT managers need to stay in close touch with their account representatives, requesting more than simple reassurances about support levels going forward,” said DeCarlo.
The Changing Desktop
Although HP remains tight-lipped about its specific plans for its PC business, some government IT professionals think they know where the HP desktop is going.
“The implication was that HP was going toward more of a virtualized desktop,” said Bajinder Paul, deputy associate administrator at the General Services Administration’s Office of Citizen Services and Innovative Technologies. Paul, who made the comment at the 3rdAnnual Lowering the Cost of Government with IT Summit, hosted by FedScoop, said he shared this analysis with other executives at the GSA and that “maybe the government should be contemplating that architecture shift.”
That architecture shift has a name – cloud computing. And it was there, in the cloud, where Jeff Bergeron, HP’s Chief Technology Officer for its Public Sector business, may have dropped the biggest hint yet about the company’s vision of the future desktop.
“How you access information is simply going to be a pane of glass,” said Bergeron. “We’re working through what we call government cloud consulting to help clients identify the building blocks through which they can transition from traditional IT environments and begin to adopt cloud.”
The push to move applications and data into the cloud stems from the fact that most government agencies and private enterprises are drowning in data that costs more and more to manage. And while many agencies have balked at the notion of moving to the cloud because of security concerns, those that have made the shift make note of the return on the investment.
Before the adoption of cloud computing, “a significant portion of our organization was managing assets,” said Paul. “Going to the cloud, we’re now focused on services and mission-critical applications…[and] innovation.”
HP: From Slow to Late to Crisis?
HP’s strategic re-design did not happen overnight. The company has been moving, albeit slowly, toward a cloud and services-based business model for several years. Evidence of this is its 2008 acquisition of federal IT services company EDS, positioning the company to compete with global IT services leader IBM.
But it was the latest round of restructuring and acquisition news, including a $12 billion acquisition of British software firm Autonomy Corp., which ignited a revolt among the company’s investors.
One day after HP announced its restructuring plans, investors fled the company to the tune of about $16 billion – a dive of more than 20% from its pre-announcement share price on Wall Street. And where did a lot of that money go? You guessed it – chief PC rival Dell.
But HP’s change of strategy seems slow by Dell standards. According to Max Peterson, Dell’s General Manager for Civilian and Intelligence Agencies, the transition away from the traditional PC business toward a services and solutions-centered model at Dell took place two years ago, starting with the acquisition of IT service provider Perot Systems. More recently, the company announced plans to invest $1 billion in cloud-based services and build more than 20 Global Solutions Centers.
In fact, Dell has already changed the terminology it used to describe the traditional PC market.
“Our terminology is now next generation end-user computing,” said Peterson. And while PCs remain a core component of the federal IT enterprise, the real push is behind “virtual desktops… mobile devices and multi-level security,” all of which Dell already offers, Peterson added.
IBM has also made a massive push in the cloud arena with its so-called Smart Cloud delivery platform supported by $3 billion in cloud acquisitions, five cloud data centers and 11 cloud development labs.
Some HP shareholders seem to be pointing fingers at CEO Leo Apotheker (pictured above) for the company’s inability to set a clear course that customers – government and industry alike – can feel confident in. So is this a crisis of leadership?
“I’m not sure if crisis is the right word but there are certainly tensions at HP between old and new,” said DeCarlo. “Leo Apotheker is certainly a very capable CEO but he inherited a business that is very much at a cross roads with respect to its future. The company wants to be a services-led business but it has yet to find its footing in this space,” she said. And the EDS integration that HP banked on to put it into the services business “has been lengthy, complex, and, quite frankly incomplete,” DeCarlo added.
“HP has failed to effectively rationalize services and demonstrate the kind of agility necessary to achieve its growth potential,” she said. “IBM and Dell will clearly benefit from all of these missteps,” as will other rivals like CSC.