The New Superheroes of the Enterprise
Every industry needs its captains, but is there ever a point at which size becomes a detriment to profitability and, more importantly for the rest of us, innovation?
Of course there is, because it’s difficult to know when size has gone from being an asset to a liability. The history of commerce is littered with large companies that refused to break up and ended up weaker for it, along with companies that did break up but then could not compete against stronger rivals. And then there are the cases where former business units are later reunited to form all new conglomerates.
Hewlett-Packard apparently feels it is at an inflection point. The company has decided to separate its enterprise business from the PC/printer business in order to give both sides an edge in their increasingly competitive respective markets while providing leverage to expand into new technologies like cloud services and 3D printing. Apparently, each company will pursue that goal in different ways, with the enterprise business focusing on product and development while the PC/printer side will focus on higher returns to shareholders.
It wasn’t too long ago, though, that HP itself was looking to boost its enterprise holdings in a big way by acquiring EMC Corp. The storage giant would have turned a unified HP into the largest tech company in history with more than $130 billion in sales. Those talks seemed to fizzle in recent weeks, and it is unclear whether the deal would still be on the table with HP Enterprise. Such a deal would be more like a merger of equals rather than a classic take-over – again, breakups followed by mergers and acquisitions resulting in a new industry powerhouse.
The question some analysts are asking, however, is whether either company will be positioned for growth going forward. As Elevation Partners’ Roger McNamee explained to Venture Beat, neither the PC industry nor the enterprise hardware industry is hitting on all cylinders anymore, and low-cost competition from China and the Pacific Rim is likely to keep margins and profits very tight for some time to come. So rather than HP as one boat with two anchors dragging it down, the breakup leaves two boats in the water, each with its own anchor.
Oddly, says Forbes’ George Sanders, it’s HP’s PC business that seems to have the better outlook. PC sales have actually seen a slight uptick over the past year, while broader enterprise operations declined. And as for profit margins, the markup on printer ink is enough to turn even a tobacco executive green with envy. All of this could change on a dime, of course, particularly if the enterprise company stresses services and software over hardware. And if you recall, HP spun off its test and measurement business into Agilent in 1999, and Agilent stock is up nearly 40 percent since then, while HP is down 3 percent.
Diversity is never a bad thing when it comes to data technology, but neither is consistency. Hewlett-Packard has long been the one company that could deliver an end-to-end data infrastructure spanning the PC in the employee cubicle to the cloud-based server and storage infrastructure. It isn’t absolutely necessary for all of these elements to come from a single vendor – in fact, it is better if they don’t – but at least there was a consistency of platforms that made it easier for disparate architectures to function as a single entity.
All of that isn’t going to go away with two separate HPs, but it does mean that the data industry will be just a little less cohesive than it is now.
Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata, Carpathia and NetMagic.
