Market Update: Ricoh Works with Vidyo on Videoconferencing

Rob Enderle

Paying a sharp premium for 3PAR, HP has purchased a core technology that should position the company well against what is believed to be the biggest pool of potential revenue for this decade, the virtualized cloud. It is a costly victory, but Dell recognized that HP was likely willing to go even higher to acquire this property and wisely left the process because it lacks the software infrastructure to make the best use of what 3PAR has to offer.

 

The execution by HP is doubly interesting because it came when the company doesn't have a full-time CEO, and it is a risky move because the incoming CEO might disagree strongly with this move. For instance, it is believed that Mark Hurd, HP's recently terminated CEO, was against paying a premium for 3PAR.

 

So this illustrates several things: One, that HP's board is active and willing to move on opportunities regardless of whether a CEO is in place, which could bode well for the company long term. It establishes Dave Donatelli, head of Enterprise Servers, Storage and Networking, and Shane Robison, chief strategy and technology officer, as a power team inside of HP, as it required both to pull this off successfully. And this showcases the strength of HP's executive team in accomplishing difficult tasks.

 

Let's explore this a little more.

 

3PAR


 

We covered 3PAR and the opportunity it represents previously, but companies that are as structured as HP tend to be risk-averse, particularly at the top. Aging executives learn it is safer, if they want to reach retirement, to not take risks and to love the status quo. That is why so many older companies lack the agility to compete.

 

This 3PAR acquisition is very risky because most of us set the ceiling for the company's worth below $32 a share, and HP bid more than that. Now realize that this ceiling is largely a guess, and even at this price, the cost represents a fraction of the billions of dollars that the emerging cloud-based market represents. And Oracle, IBM, and Acadia -- the joint venture between EMC, Cisco, and VMware -- have vastly stronger software units critical to this market than HP does, and Dell was behind HP.

 

Better for Dell

 

This should force Dell closer to Microsoft to get better access to Microsoft's technology, a tighter relationship and more competitive joint offering than otherwise might have been the case. Because Dell lacks the software foundation that HP has, its ability to make the best use of 3PAR was always in question. But it certainly can work with Microsoft or VMware in their traditional hardware-focused roles, though it probably would be Microsoft since VMware is part of Acadia.

 

Dell also was under a lot of pressure from the financial analyst community, which has been pushing Michael Dell hard to hire Mark Hurd to gain a greater level of financial predictability. This would be a mistake of biblical proportions because Hurd likely would do something similar to what Kevin Rollins did there. In a simpler structure like Dell's, the adverse impacts of an excessive focus on quarterly results become visible much more quickly. But this pressure meant that Dell couldn't go to extremes, as HP was willing to for this acquisition.


Wrapping Up: HP Now Needs to Execute

 

There was a clear problem identified in the bidding war: 3PAR didn't want to be acquired by HP. A number of executives there had left HP as disgruntled employees, reflecting on HP's poor employee-satisfaction scores. HP is bleeding talent and will likely lose critical resources from this acquisition, mentally initially and physically once retention packages run out, if it doesn't address the sources of employee dissatisfaction. Robison has personally promised to protect them, and he is both one of the best-liked executives and most qualified to do this.

 

HP now has a strong part of a solution, but it needs to complete the suite. It's in a race between Oracle, Acadia, and IBM to do so. It has shown amazing agility without a CEO, a time when most companies would be unable to make big decisions. But this is only an early milestone; it still needs to finish the race. 3PAR brings HP closer to the finish line, but HP will still need to execute sharply to cross it.



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