UPDATED 08:30 EDT / DECEMBER 10 2013

Righting the HP ship : Getting back to growth | #HPDiscover

Kicking off the live coverage of the HP Discover conference from Barcelona, Wikibon’s Dave Vellante and SiliconANGLE’s John Furrier discussed the strengths, opportunities and challenges that lay ahead for HP as a company in the immediate future.

Meg Whitman has decisively taken the helm of this legacy company, guiding it through year two of a five year turnaround. Historic in its size, it is no secret they have encountered troubles over the past few years. While HP is currently a $112Bn company, it really is underperforming for where it should be.

Addressing the Barcelona conference, Vellante noted that cosmetically the branding and spacious set-up is not dissimilar to their most recent US conference in Las Vegas. However, the European conference is decidedly a larger affair, attracting upwards of 10,000 attendees.

Getting back to growth

 

The first year of Whitman’s strategy saw HP paying down their debt and increasing their market caps. Now, according to Vellante, they are poised to engage in bringing in smaller acquisitions that can get them back to growth. “We’ve said they need to shrink before they grow and that is exactly what they are doing,” Vellante commented. His prediction is that HP will continue its contraction over the next couple of years before we start to see true growth from the company.

It is apparent Whitman’s focus in these first two years of the company’s reorganization has been on the financial side, which Furrier notes has been impressive. Where the company is less than impressive is on their product side.

On the most recent earnings call, Whitman announced both the dividend and share buyback. This led Furrier to inquire of Vellante if he believed HP was proceeding on the right path.

“I would reorganize the reporting structure and the structure underneath to show growth,” Vellante replied. He noted their enterprise group, the only high level group reporting growth, was growing at 1.8 percent. He believes HP should package the way it reports in much the same way IBM does. By focusing on areas like Cloud and Converged Systems, their financials will be easier to track and it will be more apparent where HP is shifting its business.

Identifying HP’s relevancy

This distinction really is important because HP has two sets of clients: those who buy their products; and Wall Street, who buys their financials. HP needs to identify their relevancy as they move forward and they need to recognize which markets they should aim to disrupt.

“In their history, in the late 1980’s, they were a declining computer company,” Furrier points out. “Then they developed laser printing. That was a black swan product. They need that again.” This is in light of their enterprise group having a solid, if unexciting, line of product offerings. As it stands, this area of the company will not be the part that grows HP’s business. A breakout product will be necessary for HP to maintain relevance.

Speaking to this, Wall Street asked Whitman explicitly about their R&D. Her answer might not have been very confidence instilling. Claiming HP was being efficient in R&D spending sends the signal they are cutting spending. For a company that needs to focus on returning to their roots of inventing, this is not a good sign. Once you cut spending in this area, one cannot simply turn it back on in the future and expect immediate results.

Previous acquisitions by the company have, for the most part, worked out very well. Vertica has been the most interesting of their most recent purchases. It allowed HP to develop the Haven platform, making them a big player in Big Data.

3PAR was another strategic buy for the company. It effectively saved HP storage. For years it was presenting triple-digit growth numbers and even now is hovering around 60 percent.

Their acquisition of Autonomy, which most would concede they overpaid for, really needs to be leveraged for their software business to experience meaningful growth. Currently it is in decline.

Summing up the introduction for the conference, Furrier stated HP is, in their current position, a hard company to describe. “They are in a good position. I like the position. I like what they are doing. But we need to hear what the next growth driver for HP is going to be.”

SiliconANGLE’s theCUBE will be broadcasting live from Barcelona over the next two days.


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