I joined a bunch of analysts in discussing Hewlett Packard Enterprise’s next move at a secret conclave last week. The company had just announced the sale of its IT services, which basically undid much of Mark Hurd’s work as CEO. (It already had sold off PCs and printers, more than undoing Carly Fiorina’s earlier efforts.) Granted, HPE spun it like it was an acquisition (I’ll get to that later) but this move leaves the firm even more crippled, suggesting there’s more to come.
I’ll focus on that this week and close with an interesting book I should have written on how Donald Trump is winning the election and likely will become president.
So, Did HP Buy CSC or Sell Services?
I have to hand it to HPE, as I’ve never before seen a sale spun as an acquisition. To hear Meg Whitman speak, it was like she had completely lost touch with reality. I’m starting to think there is an alien artifact in the CEO’s office at HPE, because she clearly isn’t the first HP CEO who has lost complete touch with reality.
Carly Fiorina, for example, thought the HP board reported to her. Mark Hurd thought an HP-paid mistress was a perk. Leo Apotheker actually thought he was CEO — even though apparently no one else at HP shared that view.
Here is a test of a sale versus a purchase: When you sell something, you get cash and they get control. HPE got cash and CSC got control. Yes, Whitman got a board seat and undoubtedly another big paycheck, but being on a board — and she should know this — doesn’t mean you run the company. Given that she appears to believe it does, it kind of makes you wonder which HPE board member is running the company. Clearly, Whitman doesn’t have a clue.
She has sold off printers, PCs, thin clients, tablets, whatever was left of the phone business, and now services. So what’s next?
Servers on the Block?
I’d say the smart money was on servers. When IBM sold off PCs, it couldn’t sustain its Intel-based server business and had to sell it to Lenovo — the firm that bought the PC business. So I guess HPE could try to sell servers to HP Inc., but HP Inc. is up to its eyeballs in debt already, thanks to being gifted with all of the company debt in the divestiture, so I doubt it has the resources to buy it.
Next in line would be Oracle, because Mark Hurd knows the business and it would strengthen Oracle’s offering. However, Hurd also knows what it is worth, and I’ll bet it is less than Whitman is willing to accept.
Next there’s Lenovo, but it currently is finishing two parallel large acquisitions and likely feels it can take the business organically. Finally, there’s a bunch of other companies out of China that probably aren’t too excited about HP’s server business.
So, other than HP Inc., I don’t see a viable purchaser — unless Acer wants to make another run at the server business, and I don’t think it is that stupid.
Storage on Its Way Out?
I’ve been doing a lot of large customer interviews this year, and a common refrain is that HP Storage isn’t competitive at scale. 3Par isn’t working at scale either, and that likely is at the heart of Whitman’s decision to make a play for EMC. She realized her storage product set was crap and wanted to replace it with EMC’s.
I also think she realized that if EMC bonded with a different company — and Lenovo was looking to partner with it closely at the time — she’d likely lose a lot of accounts, because the smart buyers that still bought other HP gear were buying EMC storage.
By the way, this likely goes a long way toward explaining how Dell justified the purchase. With EMC, it likely gets a decent shot at replacing HP servers. HP’s storage is crap — so selling that unit likely will be difficult unless it can convince either Lenovo or Oracle that what it has is fixable and thus, at a discount, worth the price.
Networking for Sale?
HP’s networking was its most powerful asset when Whitman took over, but she slowly got rid of all the top networking execs. It still seems to concern Cisco, though, which means it still has a great deal of potential value — though with the staffing changes, it likely has a sell-by date after which it won’t be worth much.
Again, both Lenovo and Oracle likely would-be purchasers, though Dell also might take an interest, depending on how its relationship with Cisco goes after the EMC merger. (EMC loves Cisco — Dell not so much.) Cisco’s new management appears to be mending fences, though. So if we are talking the asset with greatest value — and this suggests Meg Whitman would get the most personal gain from selling it — then networking is next.
Although many of my peers are thinking servers, I’m betting on networking because that’s where the biggest return is likely to come for Meg.
Software Holding Firm
I doubt they’ll sell software. Mark Andreessen has been pushing for some time to turn HP into a software company and though some might question his judgment, given the Facebook India scandal and Netscape’s failure, other members of the board apparently listen to the guy.
Leo Apotheker was hired largely to make that happen, and it seems the idea just hasn’t died a well-deserved death. So I think the end game here is to leave HPE as just a troubled software company, making the only real lasting mystery who Andreessen will blame when that fails. (HPE got rid of its top software guy some time ago.)
Wrapping Up: RIP HPE
Maybe this should be titled “Death by CEO.” If you don’t buy it, just take a look at HP Inc.’s executive team.
You’ll see two people who likely have the strongest inside knowledge of Meg Whitman’s plan: HP’s old CFO Cathie Lesjak, who is rather famous for either stopping or trying to stop some of HP’s biggest mistakes; and HP’s old head of HR, Tracy Keogh, who is out of Harvard and arguably the most qualified HR director in tech. Both of them left HPE, and probably not because they thought Whitman was a brilliant CEO. Just saying.