While 368 million units — the number Gartner reckons will be sold this year — seems like an awful lot, it amounts to growth of only 4.4 percent over 2011. The economy — Europe is still weak amid ongoing sovereign debt problems, plus supply chain troubles brought on by the flooding in Thailand where most of the world’s hard drives are made — is weighing the market down, Gartner says.

What will save it? Windows 8 and Ultrabooks, but not before 2013, when Gartner says to expect sales of 400 million PCs. They might stimulate renewed interest among consumers and businesses. But it’s hard to say.

What about Apple’s iPad and other tablets running Android eating into PC sales? There’s no question that they do. But that impact is relative: Gartner last sized up the scope of the tablet market last fall, and pegged it at 64 million units in 2012, which is probably conservative, seeing as how Apple sold 15 million iPads in the fourth quarter of 2011.

What has often happened with forecasts like this is that chipmaker Intel gets batted around a bit in a negative way, as financial analysts work the forecasts into their own expectations for the stock. If PC sales are slowing, the thinking goes, then Intel, which supplies most of the world’s PC microprocessors, will no doubt suffer.

Intel has tended to do well despite these forecasts, and cites growth in certain developing markets, like Brazil, India and Russia, where Gartner and other research firms have more limited visibility, as keeping demand for its chips growing.

Gartner tries to address that point in a summary of its forecast: Emerging markets will be key to driving growth, says its analyst, Ranjit Atwal, and most of the growth in the PC business will come from these countries through 2016. But the upshot is that if all you can think about is buying a new iPad and not a new PC, you’re not exactly alone in the world.

CEO Meg Whitman, who upon becoming CEO agreed to take an annual base salary of $1, received more than $16 million worth of stock awards. Add on another $372,598 in other compensation, and the total value of her package was north of $16.5 million. Much of that other compensation stemmed from the period when Whitman was a director on HP’s board, and before she was CEO.

Under her employment contract, Whitman received an option to purchase 1.9 million shares of HP stock at a strike price equal to the value of the share price on the date of the grant, and subject to vesting requirements over time. As of today, 1.9 million shares would be worth almost $55 million. Whitman, the filing says, was the only one among the company’s named executive officers to receive an options award during 2011.

The filing also shows that CFO Cathie Lesjak made a base salary of $825,000, plus $9.3 million in stock-based compensation, $679,000 in incentive pay and $101,500 in other compensation, for a total of more than $11 million.

Todd Bradley, executive vice president and head of the Personal Systems Group, the division that HP briefly considered spinning out last year, made a base salary of $850,000, plus $9.3 million in stock-based compensation. He received $464,457 in incentive pay, plus $105,000 in other compensation, for a total just shy of $10.7 million.

Vyomesh “VJ” Joshi, the executive president and head of the Imaging and Printing Group, got an $850,000 salary, too, and nearly $8 million in stock awards, plus $638,355 in incentive pay, for a total of $9.8 million.

Shane Robison, the former chief strategy officer who retired last year, received a base salary of $781,250, plus stock awards worth $7.6 million and $606,506 in incentive pay, for a total of $9 million.

Finally, we have a full accounting of what former CEO Léo Apotheker made for his 11 months of service at HP’s helm. The full amount was $30.4 million. The precise amount had been the subject of some guesswork based on less-than-complete HP filings made around the time of Apotheker’s departure. The filings netted for HP a dubious award for “Worst Footnote of the Year” over at Morningstar’s Footnoted blog. My best guess had been in the $28 million to $33 million range.

Apotheker’s compensation breaks down like so:

• $1,152,770 in base salary.

• A $6.4 million bonus, of which $4 million was a signing bonus when he joined HP, and $2.4 million paid under the terms of his separation agreement.
• Stock awards worth $17,660,759.
• $5.2 million in “other compensation.” Within that was $2.9 million in relocation expenses related to Apotheker’s move from France to California and back; $1.7 million in “miscellaneous,” the majority of which, as explained in a footnote, was a “reimbursement for foregone non-competition payments that would have otherwise been payable by his former employer,” which refers to the software company SAP, where Apotheker was co-CEO.
• Another $25,000 representing his personal use of HP aircraft.
  ]]> http://allthingsd.com/20120203/hp-ceo-whitman-earned-one-dollar-plus-16-million-in-2011/feed/ 0 http://allthingsd.com/20120112/2011-was-the-second-worst-year-for-us-pc-sales-in-history-except-at-apple/ http://allthingsd.com/20120112/2011-was-the-second-worst-year-for-us-pc-sales-in-history-except-at-apple/#comments Thu, 12 Jan 2012 15:52:29 +0000 Arik Hesseldahl http://allthingsd.com/?p=163150 Last year, for the first time since 2001, the U.S. market for personal computers shrank, according to separate research reports issued yesterday by the research firms Gartner and IDC. The year 2011 was, by IDC’s reckoning, the second-worst year in the PC industry’s history.

  U.S. consumers and businesses bought 71.3 million PCs, representing a drop of nearly 5 percent over 2010, when they bought more than 75 million, IDC said. So much for the year.

  And the fourth quarter, traditionally one of the industry’s strong points, wasn’t much help. Shipments of PCs in the fourth quarter declined by nearly 7 percent, according to IDC; Gartner said they fell by 6 percent. Hewlett-Packard saw its U.S. shipments drop by 25 percent in the IDC report; Dell by 5 percent; Acer by 14 percent; and Toshiba by 2 percent.

  HP’s flirtation with spinning off its PC division last year hurt sales, as businesses and consumers lost confidence in the company. The main beneficiary of that appears to have been China’s Lenovo, the world’s No. 2 PC maker, which saw its shipments, on a global basis, surge by 37 percent, though it’s not much of a player in the U.S. market.

  For the full year, HP saw its shipments fall by nearly 5 percent; Dell’s fell by more than 8 percent; and Acer’s fell 30 percent in the U.S.

  So who grew? Apple. It saw its shipments grow by 18 percent in the quarter, according to IDC, and by 21 percent in the Gartner report. As of the end of the year, IDC said, Apple’s share of the U.S. market amounted to 10.7 percent, which is up from 8.8 percent a year ago.

  ]]> http://allthingsd.com/20120112/2011-was-the-second-worst-year-for-us-pc-sales-in-history-except-at-apple/feed/ 0 http://allthingsd.com/20120102/a-look-back-at-ibms-palmisano-era-and-the-china-strategy/ http://allthingsd.com/20120102/a-look-back-at-ibms-palmisano-era-and-the-china-strategy/#comments Mon, 02 Jan 2012 17:33:14 +0000 Arik Hesseldahl http://allthingsd.com/?p=158824 Saturday was Sam Palmisano’s last day on the job as CEO of IBM, and Sunday was Ginny Rometty’s first.

  The New York Times published something of an exit interview with Palmisano over the weekend. It read a bit like a victory lap, and that’s not undeserved. The record books will show that IBM shares during the Palmisano era (2003-2011) rose by 125 percent; sales grew from $81 billion in 2002 to an expected $107 billion; and annual profits on a per-share basis went from $3.07 to a consensus forecast of $13.38.

  But it got me to thinking about one of the highlights of the Palmisano era; one that generated a great deal of attention at the time: IBM’s decision to sell its personal computer division to Lenovo, the Chinese PC maker. It was a relatively small deal, worth less than $2 billion at the time, but it was a controversial move. Despite the fact that IBM wasn’t making much money on the business, IBM PCs, especially its ThinkPad line of notebooks, were generally considered to be pretty good.

  Nearly seven years later, it’s worth noting that Lenovo is now the world’s second-largest PC vendor, behind Hewlett-Packard, having vaulted past Dell earlier this year, according to the market research firm IDC. It’s also worth noting that Lenovo is in fifth place in the U.S., behind HP, Dell, Apple and Toshiba, in that order.

  IBM initially owned 15 percent of Lenovo and maintained a stake in that company until February of this year, when it sold its remaining 4.3 percent shares at a profit of more than a quarter-billion dollars.

  Lenovo’s biggest shareholder is Legend Holdings, of which 36 percent is owned by the Chinese Academy of Sciences, a.k.a. CAS Holdings, a state-controlled entity. The state has pared back its stake, though: When the IBM-Lenovo deal was announced in 2005, Lenovo was 57 percent state-owned.

  There was a lot of natural controversy, and even national security concerns in 2005, about selling so red-blooded an American product as the IBM PC to China. But there was also a solid business case to consider. The PC business was a drag on earnings because of downward price pressure exerted by Dell and all the others, and it wasn’t even leading the market, as was the case with Hewlett-Packard, which engaged in some very public contemplation about spinning off its own PC division.

  But there was also a potential strategic benefit, which Michael Useem, a professor a the University of Pennsylvania’s Wharton School of Management, pointed out at the time: Making friends with China.

  By selling an underperforming asset to a buyer willing to take it and run with it, IBM got solid access to the exploding Chinese market. In paraphrased remarks to the Times, Palmisano concedes the point:

  Palmisano says he deflected overtures from Dell and private equity firms, preferring the sale to a company in China for strategic reasons: the Chinese government wants its corporations to expand globally, and by aiding that national goal, IBM enhanced its stature in the lucrative Chinese market, where the government still steers business.

  So how has that worked out? It’s a little hard to tell from reading Big Blue’s Byzantine financial statements. In fiscal 2005, the year the deal closed, IBM reported $18.6 billion, or about 20 percent of revenue, came from the Asia-Pacific region, including China.

  And though it declined to provide specific dollar amounts, it said that year that sales in China had dropped by 19 percent, but after after stripping out the PC division, would have grown by 8 percent.

  For the first nine months of fiscal 2011, IBM reported that the Asia-Pacific region accounted for exactly the same dollar figure — $18.6 billion — amounting to 24 percent of its overall sales of $77.4 billion, and there’s still a quarter to go. That would put Asia on track to account for a little less than a quarter of IBM’s revenue.

  In its earnings statement, IBM also makes a point of calling attention to what it calls “growth markets,” which are generally the BRIC countries — Brazil, Russia, India and China. These markets combined for 23 percent of sales in IBM’s most recent quarter.

  This is about as close to understanding the size of IBM’s business in China as we’re going to get. On balance, it looks to have been a positive move, especially when you consider that if IBM had kept its PC division, it would have likely only gotten smaller and become more of a profit drag on a company that’s increasingly focused on high-margin businesses like services and consulting.

  Nor can we judge by IBM’s headcount. Globally, as of the publication of its last annual report, IBM employed 426,751 people. But it has stopped providing a geographical breakdown. A report in the Times of India in 2010, mentioned by The Wall Street Journal, suggested that Big Blue’s headcount in India might be as high as 130,000; which, if true, would make it one of that country’s top 10 employers.

  There is no question that IBM’s presence in China has grown. You can tell by the press releases. There was for example, a new IBM Research lab in Shanghai in 2008, and another in 2010. Just last month, IBM announced that it had closed a significant IT deal for a major health-care provider in Hong Kong, and another with a Chinese province to improve the safety of pork (which included a food-safety video I embedded below).

  For better or worse, Palmisano will be remembered as the man who traded PCs for access to China. On balance, it seems to have been a good trade, but the jury is still out.

  Tomorrow is the first business day of IBM’s Rometty era. Assuming she retires at age 60, a well-established IBM tradition, she’ll have about six years to make her mark. One wonders what she’ll be remembered for most.

  ]]> http://allthingsd.com/20120102/a-look-back-at-ibms-palmisano-era-and-the-china-strategy/feed/ 0 http://allthingsd.com/20111208/2012-siri-is-a-stunner-amazon-is-amazin-and-security-gets-spendy/ http://allthingsd.com/20111208/2012-siri-is-a-stunner-amazon-is-amazin-and-security-gets-spendy/#comments Fri, 09 Dec 2011 04:59:40 +0000 Arik Hesseldahl http://allthingsd.com/?p=152034 On Thursday night, I attended a dinner at New York’s Waldorf Astoria Hotel, hosted by Mark Anderson, the CEO of Strategic News Service, a newsletter that many senior tech execs subscribe to. At this annual event, which I missed last year, Anderson makes predictions concerning what he thinks will be the dominant forces shaping the technology world in the coming year. And his predictions are always interesting.

  Ahead of the dinner, Anderson stopped by my office to let me have a peek at his 10 predictions, and we talked them over a bit. All 10 are below, along with some comments from Anderson that emerged from our conversation.

  Before diving into the predictions, Anderson tells me there is a grand theme that unifies them all: “Integrating everything.”

  What does that mean? “It means a whole lot of stuff that needs to be integrated. We don’t need anything new at all. There’s so much work that needs to be done with the existing tool sets. Steve Jobs didn’t really invent anything at all. But he was great at integrating things into a product. There’s a lot more of that work to do. We have to do it in the phone world and the TV world and the health care world. We have lots of devices and lots of chips and lots of operating systems and lots of content. The bigger question is, how do human beings use it all efficiently?”

  As an example, he cites the collaboration between Nuance, the speech software company, and IBM, bringing the Watson computer of “Jeopardy” fame into the area of health care. “For the first time, the idea of evidence-based medicine won’t just be in a magazine article,” Anderson says. “A doctor will be able to pick up his phone and describe four symptoms, and find out what the likely diagnosis is, what the indications are. It’s fantastic.”

  So here are those 10 predictions, with additional comments from Anderson:

  1. TV becomes the new center of gravity in the tech universe. All the other devices find their niches in the TV galaxy. Microsoft’s attempt to integrate Kinect into TV is a strong if qualified success. Smart phone-TV integration software becomes a new category. Pad-TV integration becomes common.

  “Apple will hustle to launch the next version of Apple TV, and it will be a roaring success and be seen as Tim Cook’s first great product success. But what it really will be is Steve’s last product.”

  2. 2012 will see tectonic shifts in phone markets. “Nokia will fail to come back, which is pretty clear to everyone except the people in Finland.” Samsung, Anderson says, will retain its spot as the new global leader in mobile phones by volume, and will keep this crown despite the debut of Microsoft’s Windows Phone 7.

  Meanwhile, Anderson says, Google will lose control over the Android operating system, mainly because unlicensed versions of Android will multiply in type and in installed base, especially in Asian countries. “It’s already a balkanized environment. Now Google loses control of the technology entirely. China is already running an unlicensed version of Android, and I think there will be more of that.”

  Finally, the smartphone will finally emerge as the dominant category of wireless phone. “Why would you have anything else? And why would sellers of content and services want you to?” he says. “It doesn’t matter if you’re in a rich country or a poor country. This stuff is cheap.”

  3. Clouds are for consumers, and for start-ups. Even as a large number of big companies move pilot projects onto external clouds, it will become clear that the real trend is for enterprise to stay away from clouds in all key areas, for reasons of both security and reliability.

  “The cloud guys hate this because they want to sell to enterprises,” Anderson says. “But the security issues are becoming really intense. If you’re a CIO, it’s a terrible environment, and you’re a target, for sure, especially if you’re a company with a lot of intellectual property. I’m not implying that things like SAAS (software as a service) aren’t a big trend. But no one is going to put their valuable IP on the cloud.”

  4. Security splits the tech world in two, finally getting attention from CEOs. Companies with real IP start to realize they have to “go big or go home” with their security response, and their spending on protecting their “crown jewels” rises dramatically.

  5. Siri stuns the world. Siri, on Apple’s iPhone 4S, has sounded the arrival of Internet personal assistants, and the world will spend this year marveling at what Siri and its rivals can and cannot do — and what they can learn to do.

  “I think we’ll see a bunch of these things,” Anderson says. “Siri will get much better. It will learn how you learn. We’ve never seen people have long-term relationships with machines before, but it will be a long-term relationship, and she will remember everything, but make good use of it. She will know you learn better by seeing than hearing, or that it takes three times to tell you something. All those things that you have to program today should be learnable. None of that has been done yet. That creates a real friendship. And I think we’re going to start seeing personal assistants not just for everyday life, but for professions like medicine or car repair. Instead of just having Siri be everything, there will be many Siris for different contexts.”

  6. We enter the amazing world of Dave and HAL, as voice recognition comes of age. From hospital to car, mobile to home, Kinect to Siri, exercise to play, work to entertainment, remote control to direct action, from Microsoft to Apple, from Tellme to Nuance — the time has come for computers and humans to talk to each other. With lots of funny stories, big bloopers and amazing breakthroughs, humanity at the end of 2012 will be talking to machines in a normal voice, and it will not seem unusual, nor be the cause of unending frustration.

  “The voice-recognition part is almost trivial,” Anderson says. “The important part is context-sensitive understanding. It used to be that all the researchers at Carnegie Mellon used to think that all you needed was more computing horsepower to do better at voice. It turned out that was wrong. It was right for a little while, but the real problem is context. And so, if you can build up that database where you can search it contextually for what to expect, that is where you get all the mileage.”

  7. E-readers prosper, but pads continue to dominate what Anderson calls the “carry-along” market. Pads and tablets will come down in price and get closer to prices of e-readers. Meanwhile, Anderson says, Amazon’s Fire will move upmarket and evolve into a full-fledged tablet.

  “If you look at the specs on the Fire, it’s a tablet, but it’s hobbled,” Anderson says. “So I think that this is part of the whole strategy: Come in and sell at a low price, and then later unveil a more complete tablet. Apple will stay ahead, though. A lot of people are asking me if Amazon will catch Apple, and the answer is no. The way it’s configured right now, there’s no way the Fire will catch up with the iPad.”

  8. The consumption world explodes. Get ready for new devices, new content, new bundles, new connection techniques, new distribution channels, new aggregators, new tablets, new phones, new players, new self-published authors, new garage bands, new consumption models riding on social networks. There is nothing but high energy in the content consumer market. People are now ready to spend subscription money, and the publisher response will be huge. “It’s going to be a huge melee of stuff,” Anderson says. “We’ll invent more stuff to consume, and it will be very hard to figure out who the players are from week to week, and how they’re doing. They may not even know themselves.”

  9. Governments and corporations focus on intellectual property as though it were their most prized asset. It is. This new global understanding leads to a reevaluation regarding giving critical IP away for nothing versus protecting it. The age of what Anderson calls “IP naïveté” is over, and the question of proper IP valuation is here.

  What is IP naïveté? “When Jeff Immelt stood on the steps of the White House the day after he was named jobs czar, and handed the plans for GE’s most important jet-engine project to Hu Jintao in order to get the permission to be allowed to bid on maybe selling engines to China — that’s IP naïveté,” Anderson says. “Thinking that’s not going to come back and show up for sale in Houston from some Chinese company in about six months is IP naïveté.”

  During 2012, he says, companies and countries will start valuing their intellectual property not for its replacement value, but for figures that are magnitudes larger. State-sponsored IP theft will shift from being considered a nuisance and more along the lines of an act of aggression.

  10. Amazon gets it all. Between outdoing Wal-Mart online, to beating the booksellers and delivering groceries, and making new inroads in video streaming, Amazon will prove that one company can indeed have it all. Strong Kindle and Fire sales will only be icing on the cake.

  ]]> http://allthingsd.com/20111208/2012-siri-is-a-stunner-amazon-is-amazin-and-security-gets-spendy/feed/ 0 http://allthingsd.com/20111123/seven-questions-for-seagate-ceo-steve-luzco-about-the-effects-of-the-thailand-floods/ http://allthingsd.com/20111123/seven-questions-for-seagate-ceo-steve-luzco-about-the-effects-of-the-thailand-floods/#comments Wed, 23 Nov 2011 13:45:10 +0000 Arik Hesseldahl http://allthingsd.com/?p=147007 Name an executive of any company that makes any kind of computing hardware that contains a hard drive, and you can bet they’re worried about Thailand.

  The country is now beginning the arduous job of cleaning up from the floods that killed upwards of 600 people and dealt a body blow to its industrial and manufacturing base.

  One industry hit especially hard is the computer business. The world relies on factories in Thailand to turn out critical components used to build hard drives, and factories there are out of commission for now. This is not a trivial problem — the factories in question are not easy to replace, retool and restart once they dry out. Nor is the answer simply for the hard drive manufacturers to build new factories somewhere outside the flood zone.

  This is the kind of supply chain disruption that the computer industry hasn’t seen in many years. I had a chance to talk with Steve Luczo, the CEO of Seagate Technology, for his view of the situation. Seagate has been relatively lucky in that its factories haven’t been directly impacted like those of Western Digital and Toshiba. But many companies that supply Seagate with necessary components have been hit, and it will be some time before they’re back on their feet.

  Luczo told me that the computer industry as a whole — including companies who make PCs, servers, workstations and any other device that contains a hard drive, whether a set-top box or an enterprise storage device — can expect acute supply-chain disruptions to last well into 2012, and that it will take until the end of 2013 for the industry to return to its pre-flood operating posture. You read that right: It will be two years before the supply of hard drives is anywhere near “back to normal,” and there are simply no easy solutions for getting it fixed.

  An estimate by the market research firm IHS iSuppli pegs the available supply at 125 million units, which is about 29 percent short of demand of 175 million units. By its reckoning, more than one-quarter of the world’s hard drive manufacturing capacity has been disrupted in one way or another, including 45 percent of the capacity devoted to making hard drives for personal computers. I spoke with Luczo by phone yesterday, and tossed in an extra eighth question because of the importance of the subject.

  AllThingsD: Steve, at a high level, I think everyone understands the problem. There’s been a terrible flood in Thailand, and a lot of factories that make crucial parts for hard drives are out of commission. To that end, I think people expect this to be a temporary problem that works itself out in a couple of months. But you say it’s a much more complex problem than most people realize. You’re tracking this situation day to day, and probably hour by hour. So, how bad is it, really? And what’s likely to happen?

  Luczo: What’s surprising to us is that even with all the data out there — we’re six weeks into it — there are a lot of fairly sophisticated companies that haven’t fully come to grips with the depth of the problem and the duration that is likely to occur. What is going to happen in the next couple of weeks is that the real shortage begins to show up right about now. There was already a lot of built inventory and a lot of finished goods moving through the system. And now all that is gone, and I think customers are starting to see shelves of parts go empty, and realizing that they’re not going to be filled for anywhere from one to two months. So the concern is heightened.

  We heard Meg Whitman talk about this on HP’s earnings call Monday. She said HP stepped in and started doing some strategic buying. She says HP is going to see effects at least through the first half of next year. Apple talked about it on its earnings conference call, too. Are you hearing from them?

  Tim Cook at Apple was way in front of this. I saw Tim the first week it happened, and took him through the situation, and in 15 minutes he understood the magnitude of it. Meg was on the second week of her job as CEO when I went to see her, and she got it right away. HP’s procurement VP, Tony Prophet, was also early to understand this. Companies like that reached out to us early on, because they understood that this is going to be an extended problem. They started asking for longer supply agreements. Deals that would typically last about a year, they’re now asking for two years.

  How bad is it really going to be? What’s your outlier worst-case scenario, and then what do you think is a little more realistic?

  If you think pre-flood, a mix [of products] that the customers need, the industry had the capacity to ship about 190 million units a quarter. Pre-flood, we expected the demand to be pretty consistent at about 180 million a quarter, with a bump in September 2012 for Windows 8. We now believe the March quarter is going to much more difficult than the December quarter, and December is going to be about 120 million or so. We think the March quarter will be about 120 million, in the best-case scenario. And that’s with customers mixing down pretty aggressively; and by that, I mean companies like Western Digital, who don’t have access to the sliders [a critical component in a drive], are shipping one- and two-headed devices so they can ship more units. So instead of shipping a drive that contains two disks and four heads, which is what the market needs right now, they’ll be shipping a one-disk, one-head or one-desk, two-head product. They’ll be maximizing the units they can sell, rather than shipping the product the customer actually needs. … So we see something like 130 million for March on the optimistic side, and then 150 million for June, 170 for September and then 190 million for December. And so by the end of 2012 you’re back to being close to industry demand. But even then, you’ve not included the impact of that missed 100 million units. And that will take another year to absorb, because it’s not like the industry is building new factories to chase that demand. We can’t over-invest to meet some bubble and then get stuck with excess capacity.

  I think, intuitively, people expected companies like Seagate to just build more factories outside of the flood zone, but it’s not that simple, is it? Would this not be a moment to add capacity?

  There are some in the investment community who think that’s what is going to happen, and that there will end up being a supply glut after all this is over, but it’s not the case. For us, it’s more a function of how to recover the supply chain and then work with the customer to get a good read on what their needs are for the next several quarters. If we see a multiquarter shortage that goes beyond what I described before, then we would think about maybe putting some capital in place. But we’re not going to do that to solve a temporary problem, because we end up being stuck with the excess capacity. Now if it turns out there is no recovery, and then the industry is more constrained than I first described — and that, by June, the industry is still 30-40 million units short and looks like it will be for the next six quarters — we might revisit. But then we’d want longer-term commitments to make sure we’re not overinvesting. But we’re not to that point yet.

  What is this doing to prices? And what does that mean to the person who wants to buy a computer or server this year or next year?

  If you look at a 10-year moving average trend, the industry has in general seen prices come down about 2 to 3 percent a quarter, and that is for a particular product. In 2009, there was a little price erosion, and that was because the storage industry recovered quickly from the recession. And there had been massive capital cutbacks, so there were big shortfalls through all of 2009 and into 2010. Then, when the Greece crisis happened, that put a big flatline on a lot of growth, and the industry had put in a lot of capital because everyone expected there would be growth. So, since spring of 2010, the price erosion has been higher than normal, which would show that supply is greater than demand. And what this flood has done is drive the supply curve down, while the demand curve has stayed constant. For OEMs [original equipment manufacturers, or the PC and server manufacturers like Apple, HP and Dell, who buy directly from Seagate], you’re seeing an average increase of about 20 percent, and in the channel [resellers who sell parts to smaller PC and server vendors], probably much higher. So all the sensational quotes you see about pricing are about those that occur in the channel, where we have no control whatsoever.

  The markups in the channel are much higher? Are the channel guys taking advantage of this?

  Yes, they’re higher, but I don’t think they’re taking advantage. I’ve heard stories about drives that we sell to OEMs for $60 that show up in the channel at $105. Normally the channel price is within about 10 percent of the OEM price. It’s just the law of supply and demand. They can’t get supply. The channel is getting about a third, at most, of the supply they would typically get. The OEMs are the ones with the supply agreements, so everyone in the channel is way short. In some market segments, supply is about 70 percent below what the demand is. And so those shortages are very acute. The channel is selling the few drives that are out there to whoever needs them the most and is willing to pay for them.

  So what does all this mean for Seagate, specifically?

  For us it’s a different story, because we’re going to be driving more volume than our competitors, because we’re not as directly affected, and we’re going to be making some  technology transitions. When we do that, it lets us take cost out of our product, so we can offer more capacity for the same or fewer parts. That helps us drive down pricing. Our goal is to recapture some of the more aggressive pricing of the last eight quarters, in order to sort of get our business back in balance. Our long-term business model calls for gross margins of 22 to 26 percent. And we use our manufacturing expertise to drive down our costs and then pass that on to our customers. This quarter, end users really won’t see it, because product has been built and has been on the shelves. As the shortages just started occurring, you’re starting to see prices increase in the channel. And then at the OEM there will be shortages in some high-value areas like enterprise storage or cloud computing. You’re going to have to see price increases, because there’s such big shortages.

  One thing that occurred to me when I first wrote about this a month or so ago is that it represents an opportunity for the flash memory chip companies to make some inroads against hard-drive guys like you, mainly on notebooks. Is there a threat that flash could pick up some of the demand?

  Some of it, but not very much. I think to the extent that there is a high value purchaser who can afford to pay $200 for 100 gigabytes, then that market will expand from 1-2 percent to 3-4 percent. Of the 35 to 40 percent shortage that exists, could you see a little of that get absorbed by silicon? The answer is yes. But there’s a cap. There’s just not enough of a raw supply of silicon to meet all the demand. Our industry will ship 400 exabytes this year. We would have shipped 450, were it not for the floods. Of that, 180 exabytes is notebooks. Reduce that by 30 percent, and you get about 55 or 60 exabytes. If you were to take all of the capacity from Samsung’s newest state-of-the-art flash factory, and dedicated it just to notebooks, it would only put out 7 exabytes a year. Plus, there are already other markets demanding flash, like  tablets and cellphones and other things. So it’s not like you can steal from those other markets. You’re not going to take a $32 product and replace it with a $350 product. Can you do it at the edges of the market? Sure. But the threat is capped by the amount of silicon available and the price point for flash storage, which is still an order of magnitude higher.

  ]]> http://allthingsd.com/20111123/seven-questions-for-seagate-ceo-steve-luzco-about-the-effects-of-the-thailand-floods/feed/ 0 http://allthingsd.com/20111121/hp-beats-the-street-but-guidance-for-2012-is-weak/ http://allthingsd.com/20111121/hp-beats-the-street-but-guidance-for-2012-is-weak/#comments Mon, 21 Nov 2011 21:23:39 +0000 Arik Hesseldahl http://allthingsd.com/?p=146378 Hewlett-Packard managed to maintain its long-running streak of beating the expectations of Wall Street analysts — now 26 of the last 27 quarters — with an earnings report that bested the consensus by four cents.

  Earnings per share were $1.17, versus the consensus of $1.13, on sales of $32.3 billion, also slightly ahead of the consensus.

  However, the guidance looks weak. HP said it sees fiscal year 2012 earnings coming in at at least $4, well below the consensus of $4.56, and not really even in the “just right” territory that I wrote about this morning.

  “We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution,” CEO Meg Whitman said in a statement.

  HP shares took a beating today, but so did the rest of the market. HP closed down more than 4 percent at $28.84. The shares are down more than 36 percent since the start of the year.

  Here’s the full earnings news release:

  PALO ALTO, CA–(Marketwire -11/21/11)- HP

  Fiscal 2011 non-GAAP net revenue of $127.4 billion, non-GAAP diluted earnings per share of $4.88 and free cash flow of $9.1 billion grew 1%, 7% and 8%, respectively, over the prior year

  Fiscal 2011 GAAP net revenue of $127.2 billion, GAAP diluted earnings per share of $3.32 and cash flow from operations of $12.6 billion

  Fourth quarter non-GAAP net revenue of $32.3 billion, non-GAAP diluted earnings per share of $1.17 and free cash flow of $1.2 billion were down 3%, 12% and 43%, respectively, from the prior-year quarter

  Fourth quarter GAAP net revenue of $32.1 billion, GAAP diluted earnings per share of $0.12 and cash flow from operations of $2.4 billion

  HP today announced financial results for its fourth quarter and full fiscal year ended Oct. 31, 2011.

  “HP has a great opportunity to build on our strong hardware, software, and services franchises with leading market positions, customer relationships, and intellectual property,” said Meg Whitman, HP president and chief executive officer. “We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution.”

  “While FY11 proved to be a challenging year, we grew non-GAAP EPS 7% and generated $12.6 billion in cash flow from operations,” said Cathie Lesjak, HP executive vice president and chief financial officer. “We’re remaining cautious heading into FY12 but are focused on delivering our earnings outlook and driving shareholder value.”

  Earnings highlights

  —————— —————————— ————————–
  Q4 FY11 Q4 FY10 Y/Y FY11 FY10 Y/Y
  —————— —————————— ————————–
  GAAP net revenue
  ($B) $ 32.1 $ 33.3 (3%) $127.2 $126.0 1%
  —————— —————————— ————————–
  GAAP operating
  margin 2.5% 9.9% (7.4 pts) 7.6% 9.1% (1.5 pts)
  —————— —————————— ————————–
  GAAP net earnings
  ($B) $ 0.2 $ 2.5 (91%) $ 7.1 $ 8.8 (19%)
  —————— —————————— ————————–
  GAAP diluted EPS $ 0.12 $ 1.10 (89%) $ 3.32 $ 3.69 (10%)
  —————— —————————— ————————–
  Non-GAAP net
  revenue ($) $ 32.3 $ 33.3 (3%) $127.4 $126.0 1%
  —————— —————————— ————————–
  Non-GAAP operating
  margin 9.7% 12.0% (2.3 pts) 10.8% 11.4% (0.6 pts)
  —————— —————————— ————————–
  Non-GAAP net
  earnings ($B) $ 2.4 $ 3.1 (23%) $ 10.4 $ 10.9 (4%)
  —————— —————————— ————————–
  Non-GAAP diluted
  EPS $ 1.17 $ 1.33 (12%) $ 4.88 $ 4.58 7%
  —————— —————————— ————————–

  Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise specified, all revenue amounts below are calculated on a GAAP basis.

  Full year fiscal 2011
  GAAP net revenue for the full fiscal year 2011 was $127.2 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. GAAP operating profit was $9.7 billion, and GAAP diluted earnings per share (EPS) was $3.32, down 10% from the prior year.

  Non-GAAP net revenue for the full fiscal year 2011 was $127.4 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. Non-GAAP operating profit was $13.8 billion, and non-GAAP diluted EPS was $4.88, up 7% from the prior year.

  Fiscal 2011 non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in the fourth quarter in connection with the wind down of HP’s webOS device business, net of fourth quarter webOS device revenue. Non-GAAP earnings and operating profit information excludes after-tax costs of $3.3 billion, or $1.56 per diluted share, related to the wind down of HP’s webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

  Fourth fiscal quarter 2011
  For the quarter, GAAP net revenue of $32.1 billion was down 3% from the prior-year period. Non-GAAP net revenue of $32.3 billion was down 3% from the prior-year period as reported and down 6% when adjusted for the effects of currency.

  GAAP diluted EPS was $0.12, down 89% from the prior-year period. Non-GAAP diluted EPS was $1.17, down 12% from the prior-year period.

  Fourth quarter non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in connection with the wind down of HP’s webOS device business, net of webOS device revenue for the period. Fourth quarter non-GAAP earnings information excludes after-tax costs of $2.1 billion, or $1.05 per diluted share, related to the wind down of HP’s webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

  Fourth fiscal quarter 2011 trends and regional performance
  In the Americas, fourth quarter GAAP net revenue was $14.5 billion, down 4% year over year and down 5% when adjusted for the effects of currency. Non-GAAP net revenue in the Americas was $14.6 billion, down 3% year over year and down 4% when adjusted for the effects of currency.

  Europe, the Middle East and Africa GAAP revenue of $11.7 billion was down 6% year over year and down 10% when adjusted for the effects of currency. GAAP revenue in Asia Pacific was $6.0 billion, representing a 3% increase year over year, and down 4% when adjusted for the effects of currency.

  GAAP revenue from outside of the United States in the fourth quarter accounted for 65% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.8 billion, up 9% over the year-ago period, for 12% of total HP revenue.

  Revenue in HP’s commercial businesses declined 2% year over year. Revenue in HP’s consumer businesses, within PSG and IPG, was collectively down 9% year over year.

  Fourth fiscal quarter 2011 business group results

  Services revenue of $9.3 billion grew 2% year over year with a 12.8% operating margin. Technology Services and Application Services revenue grew 3% and 2%, respectively, while IT Outsourcing revenue grew 1% and Business Process Outsourcing revenue declined 2%.

  Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 13.0% operating margin. Networking revenue was up 5%, Industry Standard Servers revenue was down 4%, Business Critical Systems revenue was down 23%, and Storage revenue was up 4%.

  HP Software revenue grew 28% year over year with a 27.7% operating margin. HP Software revenue was driven by revenue growth in licenses and services of 33% and 36%, respectively.

  Personal Systems Group (PSG) revenue declined 2% year over year with a 5.7% operating margin. Commercial client revenue grew 5%, and Consumer client revenue declined 9%. Total units were up 2% with 5% growth in desktop units and 1% growth in notebook units.

  Imaging and Printing Group (IPG) revenue declined 10% year over year with a 12.8% operating margin. Commercial revenue was up 4% year over year with commercial printer hardware units up 5%. Consumer printer hardware revenue was down 8% year over year with an 8% decline in units.

  Financial Services revenue grew 18% year over year driven by double-digit growth in both lease volume and portfolio assets. The business delivered a 10.3% operating margin.

  Asset management
  HP generated $2.4 billion in cash flow from operations in the fourth quarter. Inventory ended the quarter at $7.5 billion, with days of inventory up 4 days year over year to 27 days. Accounts receivable of $18.2 billion was up 1 day year over year to 51 days. Accounts payable ended the quarter at $14.8 billion, flat from the prior-year period at 52 days. HP’s dividend payment of $0.12 per share in the fourth quarter resulted in cash usage of $239 million. HP also utilized $500 million of cash during the quarter to repurchase approximately 17 million shares of common stock in the open market. HP exited the quarter with $8.1 billion in gross cash.

  Outlook
  For the first quarter of fiscal 2012, HP estimates non-GAAP diluted EPS in the range of $0.83 to $0.86, and GAAP diluted EPS in the range of $0.61 to $0.64.

  First quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

  HP expects full year fiscal 2012 non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.

  Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

  In order to more effectively manage HP as one company and align its guidance policy with its long-term objective of delivering profitable growth, HP will only be providing a quarterly and annual earnings per share outlook. The company believes that earnings per share is a better indicator of successful execution across its various business levers. HP remains committed to high levels of disclosure and transparency, including general commentary on its expectations relating to future revenue and business segment performance, and will continue to provide detailed segment-level financial performance data for completed fiscal periods.

  More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.

  HP’s Q4 FY11 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2011q4webcast.

  About HP
  HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.

  ]]> http://allthingsd.com/20111121/hp-beats-the-street-but-guidance-for-2012-is-weak/feed/ 0 http://allthingsd.com/20111121/hps-look-ahead-to-2012-must-be-not-too-hot-not-too-cold-but-just-right/ http://allthingsd.com/20111121/hps-look-ahead-to-2012-must-be-not-too-hot-not-too-cold-but-just-right/#comments Mon, 21 Nov 2011 13:55:05 +0000 Arik Hesseldahl http://allthingsd.com/?p=146114 Hewlett-Packard will today report results for its fourth fiscal quarter and its 2011 fiscal year. It will be the company’s first earnings announcement under its new CEO Meg Whitman, who stepped in as CEO two months ago.

  It will also be the first earnings release since the infamous fiasco of Aug. 18, when HP shocked investors with a truckload of news: The shutdown of the webOS hardware business, the now-concluded review of strategic options for the PC business, the acquisition of the British software firm Autonomy and a lowering of its revenue outlook.

  The consensus of Wall Street analysts calls for HP to report sales of $32.1 billion and per-share profits of $1.16. At that level, sales growth would amount to about 3 to 4 percent on a sequential basis. Which, writes analyst Toni Sacconaghi of Bernstein Research in a note to clients on Friday, is substantially slower than the 8 to 14 percent HP usually grows sales in its fourth quarter.

  HP consistently beats the consensus number — 25 of the last 26 quarters, by Sacconaghi’s count — so there’s a pretty good chance the company will do it again, despite an aggressive pricing environment for PCs, economic weaknesses in Europe and headwinds from the effect of currencies. When HP issued profit guidance in August for this quarter — the range was $1.12 to $1.16 a share — it implied that operating margins would be down by about 0.3 percent to up by 0.1 percent. This would be, Sacconaghi writes, the worst quarter-on-quarter change in operating margin since HP acquired Compaq in 2002.

  Yet the results for the quarter are almost of secondary concern. All eyes will be on guidance that HP gives for 2012. It must be realistic, but not too low; achievable, so not too high. Guidance that Goldilocks could love — just right. HP has been lowering its guidance all year, but that was under prior CEO Léo Apotheker. The right number for EPS guidance in 2012, Sacconaghi says, is at least $4.25 a share, though he’s estimating HP will finish 2012 at $4.80, which is a reduction from his previous estimate of $5.15.

  Also, it should set some clear priorities for capital allocation, Sacconaghi writes. HP took a lot of heat for paying $11.7 billion for Autonomy. Whitman has yet to set the table strategically for HP: Does it need more “transformation”? Or is it a mature company with slow predictable growth targets that routinely gives cash back to shareholders in much the same way IBM does? In choosing the latter, Sacconaghi says, HP could grow sales by at least 2.5 percent a year and per-share profits by 9 to 10 percent a year for the next three to five years.

  HP can expect to produce free cash flow next year, in the range of $8 billion to $10 billion. If it were to buy back $4 billion worth of stock, it would reduce the share count by about 7 percent, and thus goose its EPS accordingly. One important signal on this front is the addition of activist investor Ralph Whitworth to HP’s board. Whitworth is likely to advocate the return of cash to shareholders and lean against big acquisitions.

  Finally, there are lots of challenges in HP’s individual business units, none of them insurmountable. The printer unit is still recovering from the effects of the earthquake in Japan. Certain high-demand models are running short, yet there’s a lot of lower-demand models in inventory. Sacconaghi expects sales in the unit to drop 6 percent. In services, HP has had some problems delivering profit growth. Expect some explanation around that in the commentary today. In the PC business, expect some explanation of the effects HP is seeing from the flooding in Thailand which is causing a worldwide shortage of hard drives. In the Business Critical Server business, which is where HP sells its high-margin Itanium-based servers, the impact from the ongoing brawl with Oracle is making it difficult to close deals, Sacconaghi writes.

  Overall, he insists that HP — despite its troubles over the last year — remains an attractive investment for patient investors. It still leads the market segments it participates in, except services, and still has fair room for growth. Sacconaghi rates HP as “outperform,” and expects it to hit a price of $37.

  ]]> http://allthingsd.com/20111121/hps-look-ahead-to-2012-must-be-not-too-hot-not-too-cold-but-just-right/feed/ 0 http://allthingsd.com/20111116/hewlett-packard-dons-its-ultrabook-suit/ http://allthingsd.com/20111116/hewlett-packard-dons-its-ultrabook-suit/#comments Wed, 16 Nov 2011 17:11:23 +0000 Arik Hesseldahl http://allthingsd.com/?p=144802 It’s been about three weeks since Hewlett-Packard announced its decision to keep its PC division, formally known as the Personal Systems Group, or PSG. Today marked the first serious batch of new PC introductions from HP since that decision.

  The one getting all the attention is an offering in the Ultrabook category that’s priced at $900. It’s called the HP Folio¹³, and aside from its price, its headline feature is that it delivers a full nine hours of battery life.

  The Ultrabook is a concept primarily being pushed by Intel, so much so that Intel even owns the trademark rights to the name. Inside the Folio¹³ are the latest Intel Core processors. It represents the hopes of a PC industry that has seen anemic sales with little sign of a bounceback, though that depends on whom you ask.

  Major challenges have been the continued popularity among consumers of Apple’s iPad, and to a lesser extent other tablets, and the impressive sales of Apple’s MacBook Air, which now accounts for nearly a third of Apple’s notebook sales. It may not be an Ultrabook technically, but conceptually the similarities are substantial: Thin, light, sporting solid-state drives and speedy boot-up times.

  And while the MacBook Air is a big winner for Apple, there’s as yet little evidence that there’s much demand for a similar product running Windows. Last month, it emerged that Acer and Asus expect to sell only 100,000 each by the of 2011, which would amount to between one third and one half of what they originally hoped.

  Yes, it’s early days for Ultrabooks — machines that support Intel’s full design vision won’t be on the market for another several months. And the industry is just now starting to bang the drum seriously for the Ultrabook. Asus Chairman Jonney Shih talked about the category in an interview with Walt Mossberg at AsiaD last month.

  In its press releases, HP expressed the hopes of an entire industry when it quoted IDC analyst Crawford Del Prete saying he expects PC makers — including HP — to sell 95 million Ultrabooks by 2015. At their current levels, there’s nowhere to go but up.

  ]]> http://allthingsd.com/20111116/hewlett-packard-dons-its-ultrabook-suit/feed/ 0 http://allthingsd.com/20111115/deutsche-bank-expect-soft-sales-from-dell/ http://allthingsd.com/20111115/deutsche-bank-expect-soft-sales-from-dell/#comments Tue, 15 Nov 2011 14:30:04 +0000 Arik Hesseldahl http://allthingsd.com/?p=144216 Dell will report its quarterly results today after the close of markets. Chris Whitmore, an analyst with Deutsche Bank Securities, expects sales to be weak.

  The company’s troubles aren’t anything you couldn’t intuitively guess: Consumer PC sales are weak for a variety of reasons, ranging from the popularity of tablets like the iPad to a frail consumer economy, combined with slumping sales to state and local governments facing squeezed budgets. Dell’s strengths: Sales of PCs and servers to enterprises and the federal government.

  Even with weaker sales, that mix should allow Dell’s profits to hold up. Whitmore writes in a note to clients: “We expect solid margins due to favorable product mix — healthy corporate demand and softer consumer demand — benign commodity prices and greater contribution from Dell’s higher margin Storage and Server offerings.” Memory chip prices are down by 17 percent and LCD display prices are down 3 percent, giving Dell a little wind at its back from a cost perspective, and possibly offsetting the expected impact from a shortage of hard drives caused by the flooding in Thailand.

  Whitmore expects Dell to report sales of $15.6 billion and margins of 22.2 percent, and an operating margin of 7.2 percent, implying per-share profits of 44 cents. Whitmore’s estimates are slightly below the consensus view of analysts’ calls for Dell to report earnings per share of 47 cents on sales of $15.7 billion.

  Looking ahead, Whitmore expects Dell to emphasize an ongoing cycle of upgrades to corporate PCs and servers. He expects estimates for the 2012 fiscal year could improve, because right now they “appear conservative.”

  ]]> http://allthingsd.com/20111115/deutsche-bank-expect-soft-sales-from-dell/feed/ 0 http://allthingsd.com/20111102/chinas-lenovo-proves-theres-life-in-the-pc-market-yet/ http://allthingsd.com/20111102/chinas-lenovo-proves-theres-life-in-the-pc-market-yet/#comments Wed, 02 Nov 2011 19:50:55 +0000 Arik Hesseldahl http://allthingsd.com/?p=139549 There’s still life in the PC industry. For evidence, look no further than the results of Lenovo, the China-based manufacturer that bought out IBM’s PC business a few years ago.

  As The Wall Street Journal reported today, Lenovo’s profits rose by 88 percent, and it eclipsed Dell as the world’s No. 2 manufacturer, behind Hewlett-Packard. The company has been growing in part through acquisitions — it recently paid 465 million euros (about $640 million) for the German PC outfit Medion — but also by playing well in markets where people are still buying their first PCs, says Peter Hortensius, the president of Lenovo’s Global Product Group.

  Lenovo’s results did good things for shares of rival HP, which last week announced that it will keep the PC unit it had previously considered spinning off. Its shares rose 1.8 percent to $26.06. Shares in Dell rose more than 1 percent to $15.29, while Intel fell 17 cents, or less than 1 percent.

  Hortensius told me that much of Lenovo’s strength comes from being the top vendor in the world’s leading market, China, and also in its No. 3 market, Japan. In the world’s No. 2 market, the U.S. — not so much. Lenovo is fifth there, but that’s an improvement from prior periods, he says.

  Another strength he noted is in emerging markets like Brazil, where lots of people are still buying their first device and just getting their first Internet connection and not ready to think about buying tablets or smartphones just yet. But Lenovo’s a big player there, too, and sells Android based smartphones and tablets in China. It also plans to sell tablets running Windows 8 when it’s released. And as part of a four-screen strategy, he said, the company will have more to say on the subject of smart TVs soon.

  What it doesn’t have, at least in the U.S. yet, is a strong brand presence. And so it has crafted a marketing campaign around “people who do.” So what do you do when you need to get attention for a less-well known PC brand? You drop a laptop out of a plane, naturally. Of course there was a technical reason for doing it: Proving that the machine could boot up in time to deploy a parachute and land safely, though I have to wonder just how soft that landing was in reality. I embedded the spot below just because it looks cool.

  ]]> http://allthingsd.com/20111102/chinas-lenovo-proves-theres-life-in-the-pc-market-yet/feed/ 0 http://allthingsd.com/20111031/hps-touchpad-the-tablet-that-refused-to-die/ http://allthingsd.com/20111031/hps-touchpad-the-tablet-that-refused-to-die/#comments Mon, 31 Oct 2011 12:45:16 +0000 Arik Hesseldahl http://allthingsd.com/?p=138253 Hewlett-Packard’s TouchPad is back for sale at Best Buy.

  Unceremoniously killed under HP’s prior CEO on Aug. 18 after disappointing sales, the device quickly found a market after retailers and HP itself slashed the prices on remaining stock.

  This time, according to a Best Buy press release, a 32 gigabyte TouchPad is going for $149, with the purchase of an HP- or Compaq-branded notebook or desktop PC. Sold separately, the price jumps to $599.99.

  HP, for its part, has sold out of its internal stock of the device, according to a statement on the company’s Web site. TouchPads can, however, still be found on Amazon and on eBay.

  By bundling the TouchPad with PCs at its biggest retail partner, HP is giving itself an arguable edge against Acer, Dell and Toshiba in what is sure to be a cutthroat holiday season for PC and tablet sales. After about a month on the market, and before the product wound up on the chopping block, Best Buy sold less than 10 percent of the 270,000 TouchPads it had in inventory.

  It’s hard to know how long the deal can last. Sources familiar with HP’s build plans say the initial TouchPad order was for between 1.8 million and two million units, though a third source disputed that number without elaborating. Regardless of the number ordered, sources familiar with the deal say that HP’s decision to kill the product had no immediate effect on the build plans, as components had already been purchased and manufacturing was under way. A source familiar with the matter says the manufacturer is Taiwan-based Inventec, not Compal, as has been previously reported. HP was contractually obligated to take delivery on the remaining units in the pipeline.

  That means the TouchPad is now officially a loss leader. As an IHS iSuppli teardown analysis in August showed, HP’s cost to build a 32GB TouchPad is $328.65. At $149.99, HP takes a paper loss of more than $178 per unit.

  HP isn’t exactly crying over the lost money. Remember that as part of the hot mess of news it announced on Aug. 18, the company included plans for a $1 billion charge to account for costs related to shutting down the TouchPad and webOS hardware business.

  Whatever happens, this is probably the last hurrah for the TouchPad — for real this time. That is, unless no one takes advantage of the offer to buy one along with a PC. Any stock left over after the holiday season rush will probably wind up in Best Buy’s equivalent of the bargain bin.

  ]]> http://allthingsd.com/20111031/hps-touchpad-the-tablet-that-refused-to-die/feed/ 0 http://allthingsd.com/20111027/interview-hp-ceo-meg-whitman-on-keeping-the-pc-business/ http://allthingsd.com/20111027/interview-hp-ceo-meg-whitman-on-keeping-the-pc-business/#comments Fri, 28 Oct 2011 00:08:41 +0000 Arik Hesseldahl http://allthingsd.com/?p=137503 I just got off the phone with Hewlett-Packard CEO Meg Whitman and HP’s executive vice president Todd Bradley: We talked about HP’s decision to keep its PC-making Personal Systems Group, which Bradley runs, inside HP, rather than spin it off into a separate company.

  The decision amounts to the first — and it may turn out to be the only — repudiation so far of the strategic steps taken by HP’s prior CEO, Léo Apotheker. HP rolled out the decision to “study strategic alternatives” for the PC unit in a messy, multipronged announcement on Aug. 18.

  The spinoff scenario made little sense in light of two key factors: HP is the biggest PC maker in the world, and while its profit margins are slim, its market lead over rivals Dell and Acer continues to widen. Second, by staying in the PC business, HP continues as the world’s largest consumer of chips and hard drives and other key components that are used across its other lines of products, like enterprise servers and even printers. Cutting off its PC business would have weakened HP from a negotiating standpoint with suppliers like Intel, Seagate and others, and would thus cut into HP’s more profitable lines of business. So when Whitman says of the PC business that “together we are stronger,” she’s not kidding. It’s a fundamental truth of HP’s business.

  That Aug. 18 announcement also included the end of HP’s webOS hardware business; the $11.7 billion acquisition of the British software firm Autonomy; and, last but not least, a reduction in its revenue outlook for the fiscal year. Apotheker lost his job 35 days later.

  During a 30-minute conference call with analysts today, Whitman said to expect to hear her speak more about cloud computing in the near future. HP’s cloud-based initiative was announced by Apotheker in March, at a major HP event in San Francisco.

  Also during today’s call, Whitman said that she wants to make sure that HP isn’t spreading itself too thin. “I’m a big believer in doing a small set of things really, really well,” she said.

  Still outstanding, and apparently undecided, is the fate of the webOS business. HP killed the hardware aspect of that business following ridiculously poor sales of its TouchPad tablet. Since then, the message has been on again, off again as HP has variously cut the prices on its existing inventory of TouchPads, then committed to making a few more, as consumers swooped in to buy them at a discount. There were no decisions about that today.

  But given that Whitman, as an HP director, first signed off on the plan to explore the spinoff of the PC business, and has now decided against it as HP’s CEO, my first question for her was essentially this: What changed?

  AllThingsD: So, Meg and Todd, let’s start at the top. Meg, in August, when you were a member of HP’s board of directors, you signed off on the decision to explore a spinoff, and now you’re going in the other direction. What changed your mind?

  Whitman: As a board member, I supported the idea of exploring strategic options. This was an idea that had been floated for quite some time. We didn’t wake up this summer and decide to do it, so it wasn’t a new idea. We were looking at this from a real position of strength. This is a fabulous business. It’s No. 1 in its business, and profitable, which is quite different from the IBM-Lenovo decision a few years ago. So I was supportive. As a board member, I thought that if it’s better for customers and better for shareholders, we should look at it. I mean, that’s your fiduciary obligation as a board member. And then when I came on as CEO, I asked for a really data-driven analysis, line by line, cost center by cost center, of what the real cost synergies would be, or what the increased costs would be, and what the revenue losses or synergies might be. We had 18 different work streams with more than 100 people involved in this, and it was a real tour de force, because it’s something that HP does really well. And the math was very compelling on this. The costs to separate were far greater than the costs to remain together. That was the first thing we did. The second thing was that we talked to customers and channel partners, and the feedback was, by and large, that “you are stronger together.” They appreciate the full line of products. They appreciate the supply-chain synergies and cost reductions you get by being one company. So after we went through the analysis, it was compelling.

  I keep coming back to the idea that you buy more parts than anyone else, and so being the biggest PC maker would necessarily weaken your ability to negotiate with suppliers like, say, Intel. You get a better price on chips for servers by also being the biggest maker of PCs, for which Intel also supplies a lot of chips. Is it really that simple, or is it more complicated?

  Whitman: That’s one element of it. We are the largest buyer of components, we have the best supply chain. And we’re stronger and bigger in server storage and networking because we have PCs.

  

  Bradley: Over the past six years, myself, VJ Joshi [HP's head of printing and imaging] and Dave Donatelli worked very closely to see where we can consolidate and coordinate our supply-chain efforts, whether that’s buying things from Intel or logistics providers or manufacturing facilities. So there’s a breadth of integration that takes place. We all want to get what leverage we can out of commonality, without destroying the ability to innovate within each one of our very different businesses. To give credit where it’s due, a lot of Mark Hurd’s leadership was around getting a lot of efficiency out of our supply chain …

  Whitman: Absolutely.

  Bradley: … and it clearly has been a big driver to the profitability in PSG.

  Whitman: The other thing that Mark did was, he centralized IT and human resources and real estate and finance, and he saved a lot of money. And he leveraged that infrastructure for the benefit of all these operating divisions. And when you think about spinning off a division after the successful integration of all these costs, its really hard, because you have to create a whole new subset of IT, or a whole new finance system, and that’s not inexpensive.

  The fact then remains that PCs are a difficult business. The profit margins are thin, the competitive environment is tough — though you’re certainly on top of it now. There are challenges and difficulties — and Meg, you even conceded on the conference call that keeping PCs will weigh a bit on the overall profit margin. But I guess what I’m asking is: What’s going right about PCs, and what’s going wrong about it that you intend to fix?

  Bradley: First off, I think we all at HP — not just in the PC — we focus on continual improvement. Our service to customers will never be good enough, the quality of our products will never be superior enough. It’s a quest for us, every day, to continually improve. From a margin perspective, we make a host of products, from calculators to Superdome computers. And the blending of those margins is something that Meg and Cathie [CFO Cathie Lesjak] take into account as they provide guidance both externally and internally. Our role in our big businesses is to optimize performance from a growth and profit perspective, and I think we do that pretty well. Everyone always says the PC business is really hard. I’m anxious to find a business that’s easy, because I’m ready to sign up. (Laughs.)

  Well, since you bring it up, there’s been an awful lot of speculation as to your career plans, Todd. Can you say what they are now?

  Bradley: I’m still planning to continue to drive PSG the way we have. We have a great team of people, and I think Meg — and I’ll say this as politely as I can — Meg has filled the leadership void that I think the company needed pretty broadly.

  So we’re done speculating what your next step may be?

  Whitman: We are.

  Bradley: I am. I have no plans, other than to focus on how we drive PSG and HP. There are great people here to work with. It’s fair to say we learned things. This process has shown us some areas that we’re going to improve on pretty quickly. Clearly, we have some challenges, but I think I’m working with the best team of executives in the industry.

  Whitman: I’d add one thing — that while the operating margin of this business is not as high as some of the other businesses at HP, the return on investment capital is really terrific. And that’s because of the business model that Todd has set up. And when you run a big company like HP, you have to look at the return on invested capital almost as much as you do your operating margin. So that is another thing to consider. We’re going to continue to be the best at managing our supply chain and manufacturing excellence. We’re going to play to win in China and Brazil and other top emerging markets. We’re going to refine the product strategy and continue to make great, trendsetting products. I’m excited about this business. I actually really like it.

  Meg, we’re talking two days after Virginia Rometty was named CEO of IBM. And obviously there’s some significance that the two biggest technology companies are now run by women. Any thoughts on that? Do you know her?

  Whitman: How great is that? It’s fabulous. It may be a milestone, and I’m proud to be part of it, and I’m sure Ginni is, too. I’ve only met her once.

  ]]> http://allthingsd.com/20111027/interview-hp-ceo-meg-whitman-on-keeping-the-pc-business/feed/ 0 http://allthingsd.com/20111021/ready-for-a-shortage-of-hard-drives/ http://allthingsd.com/20111021/ready-for-a-shortage-of-hard-drives/#comments Fri, 21 Oct 2011 23:00:23 +0000 Arik Hesseldahl http://allthingsd.com/?p=135121 If you need to buy a hard drive or two, now might be a good time, because there’s probably going to be a shortage soon. The floods in Thailand are disrupting the operations of both of the world’s leading suppliers of hard drives, Seagate Technology and Western Digital.

  Western Digital CEO John Coyne warned yesterday on a conference call with analysts that the company expects significant impact to its hard-drive manufacturing operations in that country. It is one of several tech companies that has suspended operations in Thailand amid the worst flooding there in a half century.

  Seagate, which reported earnings yesterday, also has operations in Thailand and said those are running at full capacity, but that some of its component suppliers have been affected by the floods.

  “Given the severity of the situation and the extensive supply constraints caused by the disruption … the effects on our industry are likely to be substantial and will extend over multiple quarters,” Seagate said in a statement.

  With the prospect of an industrywide shortage of hard drives affecting one vendor but not the other, shares of Seagate today shot up by $3.36, or more than 27 percent, to $15.42; Western Digital fell nearly 10 percent yesterday, but recovered today.

  I checked in with Fang Zhang, who tracks storage for IHS iSuppli, the research firm that covers the electronics supply chain. While it’s too early yet to know the full impact, her initial estimate says that the worldwide production of hard drives will drop by about 30 percent, from 176 million units projected pre-flood to 125 million drives in the fourth quarter.

  Apple CEO Tim Cook addressed the potential for a shortage on Apple’s earnings call with analysts on Tuesday because, naturally, it will affect his ability to turn out Macs this quarter and probably into next year. “I’m virtually certain there will be an overall industry shortage of disk drives as a result of the disaster,” he said.

  One question I have is whether this could turn out to be an opportunity for the solid-state storage companies — the main supplier that comes to mind here is Samsung — that are popularizing flash-memory based storage drives in PCs like the MacBook Air and other machines. Will they boost production to fill that gap?

  (Image via Consumer Queen.)

  ]]> http://allthingsd.com/20111021/ready-for-a-shortage-of-hard-drives/feed/ 0 http://allthingsd.com/20111018/apple-results-fall-short-of-consensus/ http://allthingsd.com/20111018/apple-results-fall-short-of-consensus/#comments Tue, 18 Oct 2011 20:40:41 +0000 Arik Hesseldahl http://allthingsd.com/?p=133507 Here’s a quick first take on Apple’s quarterly results as released just moments ago. Apple shares fell $21.78, or more than 5 percent, in after-hours trading on the news.

  Sales were $28.27 billion and per-share profits were $7.05, falling short of Wall Street consensus estimates of $29.45 billion and $7.28 per share.

  Apple sold 17.07 million iPhones during the quarter, which is okay when you consider that the rumor mill about a new iPhone was seriously buzzing but good during the summer months, and yet didn’t seem to dampen demand entirely, but given the Street expected at least 20 million units sold, it’s a miss, though not an unprecedented one. That makes it 72.3 million sold during the fiscal year.

  IPad sales hit 11.12 million, amounting to growth of 21 percent. Apple finished the year having sold 32.4 million iPads. That’s a solid beat on expectations.

  Mac sales continued their their steady climb upward. Apple sold 4.9 million Macs during the quarter, bringing the fiscal year’s total sold to 16.8 million. This is yet another record quarter for Mac sales.

  Apple exits the year with $81.5 billion in combined cash, short-term and long-term investments. Certainly, calls for Apple to do something with this enormous pile of wealth besides “preserving,” as it has been for a decade or more, will intensify.

  Apple shares finished the day up $2.25, or less than 1 percent, and closed at $422.24 during the regular trading session.

  Here’s Apple’s statement in full:

  CUPERTINO, Calif.–(BUSINESS WIRE)– Apple® today announced financial results for its fiscal 2011 fourth quarter ended September 24, 2011. The Company posted quarterly revenue of $28.27 billion and quarterly net profit of $6.62 billion, or $7.05 per diluted share. These results compare to revenue of $20.34 billion and net quarterly profit of $4.31 billion, or $4.64 per diluted share, in the year-ago quarter. Gross margin was 40.3 percent compared to 36.9 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue.

  The Company sold 17.07 million iPhones in the quarter, representing 21 percent unit growth over the year-ago quarter. Apple sold 11.12 million iPads during the quarter, a 166 percent unit increase over the year-ago quarter. The Company sold 4.89 million Macs during the quarter, a 26 percent unit increase over the year-ago quarter. Apple sold 6.62 million iPods, a 27 percent unit decline from the year-ago quarter.

  “We are thrilled with the very strong finish of an outstanding fiscal 2011, growing annual revenue to $108 billion and growing earnings to $26 billion,” said Tim Cook, Apple’s CEO. “Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline.”

  “We are extremely pleased with our record September quarter revenue and earnings and with cash generation of $5.4 billion during the quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the first fiscal quarter of 2012, which will span 14 weeks rather than 13, we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30.”

  Apple will provide live streaming of its Q4 2011 financial results conference call beginning at 2:00 p.m. PDT on October 18, 2011 at www.apple.com/quicktime/qtv/earningsq411. This webcast will also be available for replay for approximately two weeks thereafter.

  This press release contains forward-looking statements including without limitation those about the Company’s estimated revenue and earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive and economic factors, and the Company’s reaction to those factors, on consumer and business buying decisions with respect to the Company’s products; continued competitive pressures in the marketplace; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product introductions and transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company’s gross margin; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the continued availability on acceptable terms, or at all, of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; risks associated with the Company’s international operations; the Company’s reliance on third-party intellectual property and digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the Company’s dependency on the performance of distributors, carriers and other resellers of the Company’s products; the effect that product and service quality problems could have on the Company’s sales and operating profits; the continued service and availability of key executives and employees; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery, or demand of products; and unfavorable results of other legal proceedings. More information on potential factors that could affect the Company’s financial results is included from time to time in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 25, 2010, its Forms 10-Q for the quarters ended December 25, 2010; March 26, 2011; and June 25, 2011; and its Form 10-K for the fiscal year ended September 24, 2011 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

  Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced iPad 2 which is defining the future of mobile media and computing devices.

  ]]> http://allthingsd.com/20111018/apple-results-fall-short-of-consensus/feed/ 0 http://allthingsd.com/20111013/hewlett-packards-pc-market-share-grows-raising-questions-about-those-spin-off-plans/ http://allthingsd.com/20111013/hewlett-packards-pc-market-share-grows-raising-questions-about-those-spin-off-plans/#comments Thu, 13 Oct 2011 13:30:18 +0000 Arik Hesseldahl http://allthingsd.com/?p=131846 Having announced to the world over the summer that it intends to get out of the PC business by spinning off its personal systems group into a separate company, you might have expected the resulting uncertainty to have hurt Hewlett-Packard’s standing in the marketplace.

  Not so: The latest data from research houses Gartner and IDC shows that HP, already the biggest PC maker in the world, managed to grow its share of the market in the most recent quarter, and actually grew faster than the rest of the industry as a whole.

  According to Gartner, HP’s share edged up to 17.7 percent in the third quarter from 17.4 percent in the year-ago period, and it sold 16.2 million PCs. By IDC’s reckoning, (Gartner and IDC conduct their counts a little differently) HP commanded an 18.1 percent share of the market, up from 17.8 percent a year ago, and shipped 16.6 million PCs.

  The data, along with retail PC sales as tracked by the research firm NPD, is widely watched in the PC industry and, if nothing else, gives some indication as to the reasoning behind the trial balloon story in yesterday’s Wall Street Journal, which said that HP is rethinking its spinoff plans.

  Meanwhile, Dell saw its share fall on both lists, and its position fell to third place behind China’s Lenovo, with Acer coming in fourth on a global basis. Apple maintained its third-place position in the U.S. market and grew its share to nearly 13 percent in the Gartner rankings and north of 11 percent on the IDC list.

  For HP, a world-dominating market share is certainly nice to have, but meaningless if it’s not profitable — which it is. In fact, despite declining revenues — sales in HP’s personal systems group fell by about $1 billion in the first nine months of fiscal 2011, to $29.5 billion — the company managed to boost its operating margins from 4.8 percent in 2010 to 6 percent so far this year.

  We know most of the reasons for the decline. Apple’s iPad has tamped down demand for conventional notebooks, and HP, having sought to create a competitive response with its TouchPad, didn’t have much luck. The impact is especially pronounced in HP’s notebook sales, which is where most of the billion-dollar drop in sales in the PC division were seen during the first nine months of the year. The results were offset, oddly enough, by a $366 million increase in sales of high-end professional workstation computers.

  Still, having a big PC business gives a company like HP the leverage it needs to buy parts from suppliers for its more profitable businesses. In HP’s enterprise storage and networking group, operating margins were about 14 percent in the first nine months of the fiscal year, where sales grew by more than $2 billion.

  It is easier to negotiate favorable prices from chip and memory suppliers like Intel, Advanced Micro Devices and Micron — and hard drive suppliers like Seagate and Western Digital — when you’re still the world’s biggest consumer of their products. Absent the PC division, HP’s orders from those suppliers would be smaller and incrementally more expensive, as discounts are often negotiated based on the volume of components ordered.

  The enterprise business was to be HP’s future under former CEO Léo Apotheker, and there is little question that its emphasis won’t continue to be on the enterprise going forward. But as HP’s new CEO Meg Whitman, chairman Ray Lane and the rest of HP’s management team contemplate the decision to spin off PCs or not, the evidence is mounting that the two faces of HP are inextricably linked.

  ]]> http://allthingsd.com/20111013/hewlett-packards-pc-market-share-grows-raising-questions-about-those-spin-off-plans/feed/ 0 http://allthingsd.com/20111006/thoughts-on-the-first-day-of-apples-post-jobs-era/ http://allthingsd.com/20111006/thoughts-on-the-first-day-of-apples-post-jobs-era/#comments Thu, 06 Oct 2011 12:56:27 +0000 Arik Hesseldahl http://allthingsd.com/?p=129580 According to the social media measurement firm Sysomos, as of midnight Eastern time, the number of Tweets mentioning Steve Jobs had reached 1.4 million, and as many as 11,000 news articles had been written about his passing and his legacy.

  That legacy — and his influence on the lives of people around the world — is inestimable, and we will be talking about him and his amazing, interesting life a great deal in the coming days and weeks.

  But as the sun comes up here in New York this morning, still mourning the departed, we are forced to confront more immediate and material concerns. Insensitive though it may seem to consider at this moment, Apple is not simply a great company — it has also proven over the last decade to be a great investment, and as such is one of the most widely held stocks in the world. Its largest shareholders are the big mutual fund companies like Fidelity, the Vanguard Group, State Street Corp. and T. Rowe Price, who among them own more than 15 percent of Apple’s shares.

  And as Apple’s value, as measured by market capitalization, has ballooned from less than $10 billion a decade ago to north of $350 billion as of yesterday, the anxiety about the mortality of its founder has regularly caused its value to swoon. Over the seven-year course of Jobs’s illness, Apple shareholders have had to come to terms with the so-called “Jobs premium,” the extra value attached to the company’s shares that existed as long as he was directly involved in mapping company strategy and applying his unique touch to its products.

  The conventional wisdom among Apple analysts now is that Apple investors, once known for their hair-trigger reflex to sell on any whiff of rumor, have gained a more complex and reasonable understanding of the situation. Apple, without Jobs, will still be Apple, and for the immediate and medium-term future, there is no reason to believe that its strategy and execution will falter in his absence.

  But as I wrote in August, when Jobs resigned his position as CEO, it’s important to understand that Apple’s long-term vision has been deposited deeply within the DNA of the company. There is a script for the next several years. Products are mapped out, schedules are set, components have been purchased, manufacturing deals have been inked. In short, everyone at Apple knows what their job is and will continue to do it without missing a beat. The path ahead is no less clear today than it was yesterday.

  No doubt the shares will be volatile as the markets open today. But that volatility will be much less than might have been expected years ago. It wasn’t so long ago that analysts predicted that, upon the death or departure of Steve Jobs, the company would lose as much as a third of its value. That’s no longer likely.

  Today, investors seem to understand intuitively that the fundamental reasons to invest in Apple remain unchanged. The growth trajectory and profitability in the sales of its products remain the envy of the industry. There are predictions that Apple will sell more than 100 million iPhones next year, and nearly 30 million iPads in the second half of this year. Mac sales continue to set records quarter after quarter.

  For all its strength in North America and Europe, Apple still has significant room to grow overseas. There are already signs of progress. In its most recent quarter, Apple reported revenue in the Asia-Pacific region of $6.3 billion, amounting to 22 percent of sales, and more than triple the sales seen in that region a year ago. One key market — China — remains a strategic priority for CEO Tim Cook and his team. Apple is still something new to the people of China, and introducing them to the brand on an ever-widening scale will be an interesting journey.

  If history is any judge, it will be a fruitful introduction. Wherever it goes, Apple’s brand seems to succeed. Ask anyone familiar with it — it is easily one of the best-loved and most recognized brands. And yet when branding experts measure its brand equity, it ranks high but surprisingly also shows room to improve.

  Just this week, Interbrand, a consultancy that focuses on corporate brands, released its annual survey of the world’s Top 100 brands. Apple is ranked No. 8, one notch above the Walt Disney Company (of which, ironically, Jobs was the largest shareholder), and two notches above Hewlett-Packard; the company had seen the largest year-over-year improvement in the value of its brand. It’s informative to consider some other names that appeared in the Top 10: Stalwart consumer brands like Coca-Cola (No. 1), General Electric (No. 5) and McDonald’s (No. 6).

  Yet it’s also interesting to note that among the technology names that appeared in the Top 10 of the Interbrand survey, Apple wasn’t at the top: That distinction goes to IBM (No. 2), Microsoft (No. 3), Google (No. 4) and Intel (No. 7). Rather than a weakness, I think this fact speaks to Apple’s potential.

  The story of Apple has never been one of narrow horizons. It has always been about looking ahead. Not just to the next quarter or to the next year, but of seeing how the march of technological progress can be harnessed to make life better in ways we can hardly grasp now. And yet when things like the iPhone materialize, they become part of us and quickly embed themselves into the very fabric of day-to-day existence. They’re not tools so much as extensions of our minds and identities. And that vision, so carefully articulated by Steve Jobs yet revealed only one product at a time, is still incomplete.

  And so I find myself writing something that at once seems absurd and yet completely obvious: It may very well be, on this deeply sad day following the death of its founder, that Apple’s best days are still ahead.

  
  Image via Jonathan Mak’s Tumblr.

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  ]]> http://allthingsd.com/20111006/thoughts-on-the-first-day-of-apples-post-jobs-era/feed/ 0 http://allthingsd.com/20110923/five-questions-for-hps-new-ceo-meg-whitman-and-chairman-ray-lane/ http://allthingsd.com/20110923/five-questions-for-hps-new-ceo-meg-whitman-and-chairman-ray-lane/#comments Fri, 23 Sep 2011 13:30:21 +0000 Arik Hesseldahl http://allthingsd.com/?p=124157 It’s been an extraordinary week for Hewlett-Packard. On Monday, HP was a sleeping giant with an unclear strategy, an unpopular CEO and a stagnating share price.

  Then word came, via AllThingsD, that something big was coming from the board of directors. And as AllThingsD first reported (again), HP directors made one of their own, Meg Whitman, the former eBay CEO who had become a director earlier this year, the new CEO. Léo Apotheker resigned, but don’t cry for him, because according to his contract, he made out rather well. Even before it was made official, investors applauded the move, sending HP shares skyward.

  Analysts did what they always do, and, well, analyzed. And though it looked more like drama criticism, it’s not as if HP hasn’t known boardroom dramas before. Finally, the deed was done, meaning it was time to hold a conference call, but not before talking first to Kara Swisher of AllThingsD.

  I got to talk to Whitman and HP Chairman Ray Lane yesterday, too, but I had to wait until after the conference call. With so many critics screaming that Whitman has no experience running an enterprise hardware company — and let’s be honest, there aren’t that many who do — I asked her to elaborate on the defense, made on the conference call with analysts, that her experience as a buyer of enterprise technology, during her years as CEO at eBay, provided important experience that will help her be an effective CEO at HP. I also asked about Autonomy, the British software firm that HP is in the process of acquiring for $10 billion, and how it will fit within HP; about the company’s plans for cloud services; and about the state of the HP brand amid all the corporate mishegas that has unfolded in the last several months.

  AllThingsD: Meg, the main criticism of you, since you’ve been named CEO of HP, is that your primary experience before was at eBay, which is a consumer-facing company. The response on yesterday’s conference call has been that at eBay you were a purchaser of a lot of enterprise technology and that this gives you some important relevant experience. I get the point, but could you elaborate on it a bit? How does having been an enterprise buyer help you be HP’s CEO?

  Whitman: What HP needs now more than anything else is management skills, communication skills and a commitment to executional excellence, all of which I know well, and are sort of core competencies from my 35-year career in business. I know technology because I ran a company whose very existence would not have been possible without it, and was a very significant buyer of technology products. And so that brings me a unique buyer’s perspective. But I have not spent 35 years in the enterprise business. Add so what that means is that I will be relying heavily on Dave Donatelli; on Todd Bradley; on the senior executives at HP; and also, frankly, on Ray Lane, who was at Oracle for many years, and EDS, and who knows this space well. So I think what customers will get is that one plus one equals three.

  Lane: I agree with that. What we need here, and what we didn’t have before, is operational execution, communication skills, getting the team on the same page and leading them. The CEOs of $130 billion companies are not leading the technology development of those companies. I think Meg can go into any enterprise and visit with any CIO or CEO and do really well. So whether it is the technology side or the sales side, I don’t think anyone is giving her enough credit on those fronts. She can do just fine. And then on top of that she has strong operating executives under her who do know the enterprise business. But right now it is the need for leadership of the people, a focus on executing and operating. I could point back to Lou Gerstner at IBM, or even my own days at Oracle. When I joined Oracle, people thought the board had lost its mind, because I was a consultant at Booz Allen. People scoffed and said ‘How is a consultant going to lead the worldwide sales force at Oracle, a trained wolf pack?’ And somehow I figured it out. And I knew nothing about software, but I learned, and I learned from Larry Ellison, who is one of the best.

  I want to talk a bit about Autonomy, and about unstructured data. You made a comment about that when you talked with Kara Swisher of AllThingsD yesterday. Talk to me about where you see Autonomy fitting within HP. Do you still intend to let it be independent? How do you see the alignment shaping up?

  Whitman: It’s a big and fast-growing market. Of all the data out there, about 15 percent of it is structured and 85 percent of it is unstructured. And the unstructured data is growing by leaps and bounds. There are not a lot of good software companies that can help companies manage unstructured data and help companies make business decisions based on what they see in that unstructured data. So what we hope to do with Autonomy, and I’m enthusiastic about this acquisition, is take what is fabulous about Autonomy — they have a leading position in the marketplace — and put it through the very powerful HP distribution system. And I think what Mike Lynch is excited about — he is the founder and CEO of Autonomy — is taking this great product and getting it into more people’s hands. And we just need to grow this company as fast as we can; extend our lead and our accumulated experience in this area. So that’s the plan for Autonomy.

  Lane: Yeah, I think the synergies are great, and I think it makes a lot of sense. It will make a lot of sense to customers if HP engages them in a dialogue of managing unstructured data.

  You don’t think HP paid too much for Autonomy?

  Whitman: You know what? It is what it is.

  Lane: We wish we could have bought it for cheaper, but it was the market price. People thought we overpaid for 3Par, and you know what? We’re hitting it out of the park.

  Is HP still going to be player in cloud services? That was a big commitment that Léo made in March. How far along is that plan?

  Lane: Absolutely. The cloud is way ahead of plan. So our cloud services have gone live. So that is absolutely part of the plan, yes.

  Meg, a lot of the same people who applauded your selection to HP’s board of directors are criticizing your selection as CEO. Why do you think there’s a disconnect?

  Whitman: I don’t know. There’s always people who have different points of view on things. What I have to do — and I said this on the conference call — is lead this company, make it a great company again and fulfill its destiny as the icon of Silicon Valley and of California, and deliver the results. I will have to prove myself by delivering the results. If we’re going to restore the confidence that investors have in us, and that employees have in us, we have to deliver. We have to mean what we say and say what we mean and deliver the results. And that is what I intend to deliver.

  Meg, you have a lot of history managing brands. I’m thinking of the job you had managing brands for Procter & Gamble. What’s wrong and what’s right about HP’s brand right now?

  Whitman: I think HP is known as the world’s largest provider of information technology, and we are a trusted brand. We are a worldwide brand that touches both consumers and businesses. If you’re an enterprise, we have full suite of solutions. I know that when I bought enterprise hardware and software at eBay, I wanted one person to choke when something went wrong. I wanted one supplier to go to and say ‘Hey, this is not working.’ And so I think we have a fabulous brand in a world where technology is increasingly fundamental. I will say — and Ray would say this as well — I think we need crisper communications with all the constituencies. I think on Aug. 18 we confused people. We didn’t mean to do that, but we did. And so I think we’ve got some work to do around communicating crisply and cleanly about what we’re about — the moves that we’re making — to employees, customers, shareholders and, frankly, to the press.

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