Arik Hesseldahl

Recent Posts by Arik Hesseldahl

More Questions About HP’s Business for CEO Meg Whitman

meg_whitman_stephen_phelpsWhen you start talking to HP CEO Meg Whitman about what’s going on at the company, she has a lot to say, because there’s just so much going on. And you get the sense that she relishes the raw challenge inherent in trying to turn around one of the world’s great technology companies.

Below is the second half of a 30-minute conversation I had with her on Monday before her keynote at HP’s annual Discover conference in Las Vegas. (She’s pictured here from Tuesday’s keynote, along with Stephen Phelps, the CMO of Nascar, a key HP customer. The image is from HP’s Flickr feed.)

This was the part of the conversation where we drilled down a bit on where HP still has challenges in its various business units. But, as you’ll read, she also thinks there’s a lot of opportunities.

AllThingsD: Meg, we talked about the personal systems aspect of the PPG business unit, but we didn’t talk yet about the other “P”: Printing. That business is seen generally in decline, and was once the great cash cow of HP. How does it stand now?

Whitman: Good. There’s a few secular trends there. Personal printing at home is declining. But professional printing is growing. And we have a nice leadership position there. We have all HP-owned intellectual property there. And we have an innovation machine that’s coming on. We have Ink in the Office, Ink Advantage, and we have our new multifunction printers. I would give a very high mark to the printing team right now. They have a strategy that we put in place in May, and they’re executing against it.

How about Enterprise Services, the former EDS? You took what was, before Autonomy, your biggest write-down ever on that unit last year, and it has been seen as something of an albatross, or at least one of the more complicated problems to solve at HP.

I wouldn’t characterize it as an albatross anymore. The good news is that the leadership team, Mike Nefkens and JJ Charhon have gotten their arms around this business and it is now quite predictable. There is a revenue decline, but we know it’s coming. And when you know there’s going to be a decline because of account runoff, then you can manage the cost structure. We have a much better handle on the business. We have spent a significant amount of money on IT systems. At one time, we didn’t have a labor demand/supply management system. We didn’t have a procurement system. The IT systems that had been in EDS were ripped out and never replaced. So we now have the ability to run that business. I think that is going to turn out to be a winner for HP. You’ll see revenue declines in that unit this year and next. But we’ve got our momentum back. There’s a plan and a strategy. And I think that this could in time become a real leading edge into the enterprise, because they can package the solutions. They see what the customers want and need in terms of mobility, and transforming their data centers, and making the journey to the cloud. They sell solutions, which brings with it hardware and software and other things. So I’m optimistic about ES, which I wasn’t a year ago. A year ago, there was a new problem every month.

Will it be smaller business overall?

It will be smaller probably for the next two years, but then it will start to grow. Remember that when you sign contracts in this business, they are three-, five- or seven-year contracts. So, most of the contracts we sign today, the business won’t start showing up until 2014.

The big shift that I remember earlier this year was at General Motors, a longtime services customer. GM decided to insource all of its IT operations, so a big batch of HP employees shifted to GM. That was seen as a big account loss. What was the net effect to HP?

It was a net revenue decline, for sure, because the company decided to do something else. But we’ve been helping them with that transition. We still do a fair amount of business with GM, and the relationship between the two companies is quite good now.

How about the Enterprise business? Project Moonshot is launched, but not yet selling for revenue. Business Critical Servers is still on the decline, and yet you’ve generally sounded positive about 3Par and storage.

So, BCS has had a hard time. When Oracle decided to withdraw support from Itanium servers, that had a significant negative impact on that business. It’s a shame, because a lot of people really counted on that business. It is a declining business, and the Unix server market segment was declining already, and the Itanium business is now declining faster than the rest of the market.

The last time we talked about BCS, you pivoted quickly to talk about 3Par. How is that business looking?

3Par is coming along nicely. It grew 82 percent last quarter. StoreOnce, although small, is growing fast. There are some declining storage businesses, like tape. So there’s a natural transition of declining businesses that transition well into the growing businesses. So, if you look at storage overall, it showed a decline of 13 percent, but it’s a tale of two cities. And I feel really good about the growing parts of that business, and eventually they’ll be bigger than the declining parts.

And networking?

Networking is going really well. We just introduced a data center flex fabric, and the wireless business is doing well both industrywide and for us, as well.

Last week we saw IBM acquire SoftLayer to build out its cloud business. That has been a strategic imperative for HP for awhile now. How is it coming along?

We’re the largest provider of cloud services. We have a very big virtual private cloud business in enterprise service, where we host the customer’s equipment on our premises, or we run their workloads in our data center. I think IBM didn’t have the organic assets that they felt they needed. The good news is that we have a whole bunch of organic assets that make me feel very good about our overall cloud strategy.

Let me back up there. You’re saying you’re a bigger public cloud provider than Amazon Web Services?

Remember that Amazon Web Services is public cloud. So that’s one instance. No, we have a public cloud business, too, and it’s much smaller than Amazon’s. But if you add up our private cloud, our HP Cloud System, our cloud service automation, our public cloud, that number is in the billions of dollars of revenue. Cloud is a funny word, because when you say it, people think it’s all like Amazon’s cloud. But our private cloud business is much, much bigger than Amazon’s public cloud.

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