EDS Merger Will Help HP Compete Against IBM

Here at the opening keynotes addresses for the HP (HPQ) Technology Forum event at the Mandalay Bay resort in Las Vegas, it's a bigger crowd than I was expecting. Lots of old Unix shops still supporting the legacy and mission critical apps and platforms but on increasingly commoditized hardware ... that increasingly needs better management.

Toss in a surge of interest in virtualization, ongoing ramp-ups to Service Oriented Architecture [SOA] and a budding fascination in cloud computing methods, and we're looking at the means to accommodate (at lower TCO) all the old and new of IT systems, platforms, framework, applications and delivery services. That takes data center transformation, and not just adding more servers. We also need the means to manage the complexity, fragility, scale and cost.

HP seems to see this clearly. The goal of data center transformation is clear, but how to get there is another matter.

Opening up the presentations Tuesday, Randy Mott, Executive Vice President and CIO, said there are more IT professionals worldwide than ever, and it's still growing fast. Unfortunately, the lion's share of these folks are supporting the older systems, and not on innovation.

IT spend as a percent of revenue is too high, he said. And there are so many worthwhile IT objectives that need to be done at the same time. "There's no easy button here," said Mott. You can do anything, but you can't to everything, he told the IT executives and practitioners in the audience.

HP has gone through an internal IT transformation since 2005, and learned a few lessons, he said. The goal was to cut the percentage of corporate revenue devoted to IT from 4 percent to 2 percent while still delivering better performance. That takes upfront investment but it can be recovered quickly, he said.

To do so you need to cuts costs and change the game, said Mott. HP built 6 massive new modern data centers over three years that indeed changed the game for HP, with 60 percent less electricity use. And those data centers replace 85 previous facilities to serve 160,000 employees.

To "change the game" also requires better portfolio management, singular data views and marts, and change management.

The effective transition also requires "transformational" change over "incremental" change, said Mott. These projects need to happen in less then three years and have a significant cost reduction payback.

Next on stage was Ann Livermore, Executive Vice President, HP Technology Solutions Group, saying that CEOs and CIOs are not confident that current data centers will support their businesses past 2010. This is due to information explosion, more demands placed on IT, and reliance on aging infrastructure, she said.

HP now has the number one revenue share of servers spend worldwide, recently beating IBM (IBM) in that role, said Livermore. One out of every three servers delivered around the world is an HP server, she said.

HP is the sixth largest software company in the world, she added, and the intent to buy EDS (EDS) will push HP services into a much larger role and set of capabilities.

Transforming the data center builds on HP's core solutions of servers/storage, services, and software, she said. In the future all the IT assets will operate as a single virtual infrastructure, the next next generation data center, in effect, she said.

Livermore also highlighted two announcements this week, the HP Integrity NonStop NB50000c BladeSystem and the BTO Software for Change Management Automation news.

What about HP UX, asked some conference goers? Livermore said HP is committed to HP Unix and Integrity architecture. "We intend to play and play aggressively" on HP UX, she said.

Won't virtualization cut into hardware sales? asked another. Disruption is good for HP, said Livermore, because the management of a combined virtualized environment is the growth of the future, even as blades become the hardware staple.

How to compete against IBM? The EDS merger will allow HP to gain the services staff expertise, scale and outsourcing capabilities to meet the building demand for solutions.

Why EDS? Mark Hurd, HP Chairman and CEO, came on stage to answer. EDS will almost double the services market coverage HP can enjoy, as well as bring more services and automate the EDS services portfolio with HP software, said Hurd. He said he's excited about aligning the EDS and HP competencies.

He's still not sure when the EDS deal closes, however, said Hurd.

Next up, Paul Otellini, Intel (INTC) president and CEO, came on stage to say how the Intel Itanium architecture momentum is building over Spac and PowerPC. Itanium is the fastest growing server chip platform globally, says IDC, said Otellini.

Intel and HP also work together on total costs of servers, of which maintenance is the higher cost than acquisition cost by far. Intel and HP plan to bring even more powerful blades to market, with high-density, low-power and low-cost computing, said Otellini.

Hurd said the partnership between HP and Intel has never been deeper and wider. He specifically endorsed the HP commitment to the Itanium family of processors.

Disclosure: HP is a sponsor of BriefingsDirect podcasts.

Comments

[RichardSchweitzer]

None of that monologue faces up to what should be of concern to investors, as opposed to HP service customers.

HPQ management seems to recognize the need in longer term business planning to reduce its production and commodities operations, which have no "moat" left, and transition ("transform') to a pattern similar to that of IBM, and become reclassified in the IT field.

T'ain't easy!

[Pfloyd234]

HP is a great company. I wish them well. They are def following in the footsteps of IBM. My money is on HP. Good article!