HP wants to be "it" when it comes to IT. Hewlett-Packard provides one of the tech world's most comprehensive portfolios of hardware, software, and services. Products include PCs, servers, storage devices, printers, and networking equipment. Its services unit provides IT and business process outsourcing, application development and management, consulting, systems integration, and other technology services. HP's software products include enterprise IT management, data management, business intelligence, and carrier communications applications. The company markets to consumers, businesses, governments, and schools worldwide.
Feeling pressure from investors, HP said in August 2011, under former CEO Léo Apotheker, that it planned to either sell or spin off its PC business, the world's largest supplier of personal computers. While its PC unit accounted for about 31% of company sales in 2011, profit margins for that line of business have dwindled over the years as PCs struggle to compete in a market increasingly fragmented by the growing number of mobile computing devices.
Apotheker was fired in September 2011, after less than a year at the helm, and replaced by Meg Whitman, who previously spent a decade leading eBay, and who poured $144 million of her considerable wealth into a failed 2009 campaign to become governor of California.
HP's plan to get rid of its PC business was met with skepticism from Wall Street and the company backtracked in October saying that its PC business was too much a part of its supply chain and business model to carve out. HP also noted that the separation process would have been too expensive, costing possibly $1.5 billion.
The divestment of the PC business would have been a dramatic step in the direction of HP's recent strategy that has emphasized software and services, which are typically more profitable areas. A shift away from hardware by a leading global PC maker is not unheard of. IBM, HP's key rival in IT services and enterprise software, sold its PC business to manufacturing partner Lenovo in 2005, and has continued to flourish by dramatically expanding software and service operations through a program of aggressive acquisition and R&D.
In response to weak sales, HP did, however, shut down its short-lived tablet and smartphone business, which was centered around a wireless operating system known as webOS and a line of mobile phones acquired in the 2010 purchase of smartphone pioneer Palm.
The company's emphasis on services got underway during the tenure of former CEO Mark Hurd, who resigned in 2010 following an investigation into allegations of sexual harassment brought by a former HP contractor. The probe revealed no violation of sexual harassment policy, but turned up evidence of other professional misconduct. He was replaced by Apotheker, the former CEO of SAP. A 20-year veteran of German enterprise software leader, Apotheker also served on the company's executive board; he was CEO for only seven months before resigning in early 2010 to lead HP. Apotheker continued the strategic shift toward services and software and away from traditional computing products.
But his tenure was not to last long, and the board replaced Apotheker with Whitman after 10 months. The change came after a series of cuts to the company's sales forecasts, a plummeting stock price, and strategic moves that were jarring to many. With a solid background as an executive for some of the world's top consumer brands -- eBay, Procter & Gamble, and Hasbro -- Whitman is an interesting choice for a company that is boldly trying to move away from some of its core consumer product lines while building up its enterprise IT services and products business.
HP is made up of several business groups, including Personal Systems Group, Imaging and Printing Group, and Enterprise Business.
HP's Personal Systems Group (PSG), its largest single segment, markets desktop and notebook PCs to businesses, consumers, government agencies, and schools. PSG, which contends with Lenovo, Acer, and Dell taking swipes at its crown, sells both HP and Compaq-branded products. Its computers are predominantly Microsoft Windows-based systems with either AMD or Intel processors, but the company does offer Linux and UNIX-based workstations. In addition to traditional PCs, PSG provides handheld computers, calculators, televisions, and digital media centers. HP's Voodoo unit makes systems used for gaming and other high-performance applications. Year-over-year revenue for PSG declined about 3% (4% when adjusted for currency) in 2011.
Services accounted for 27% of sales in 2011. Year-over-year revenue for the services segment grew 1% (though it decreased the same amount when adjusted for currency) in 2011. HP, which already boasted an IT services organization that was among the world's largest, acquired Electronic Data Systems (now HP Enterprise Services) for about $13.9 billion in cash in 2008. Recent major deals for the services segment include a $2.5 billion contract with NASA, signed in April 2011; a $1.4 billion contract with German utility giant E.ON, signed in late 2010; and a $2 billion contract with GM, signed in mid-2010.
The Imaging and Printing Group (IPG), which accounts for about 20% of company sales, provides inkjet, laser, and large-format printers. Its comprehensive line also includes copiers, digital presses, scanners, multifunction devices, software, and supplies. In addition to printing and imaging giants ranging from Canon to Xerox, HP clashes with its PC nemesis Dell in the printer market; Dell sells branded printers made by Lexmark and others. IPG also oversees HP's digital photo printers and online photo services. HP is also moving its printing business into the cloud. That strategy is behind the 2011 acquisition of Germany-based Hiflex Software, which provides Web-based services and management systems for printing, for an undisclosed sum. The IPG segment, while not steadily declining, has not experienced any significant growth in years, inching up a mere 0.1% year-over-year in 2011. Adjusted for currency 2011 year-over-year revenue declined 0.9%.
The enterprise servers, storage, and networking (ESSN) segment accounts for 17% of sales. This segment also includes business critical systems.
The company made some major acquisitions in 2010 to boost its ESSN business. It bought networking hardware and software company 3Com for about $3.15 billion in cash. The 3Com product portfolio made a nice addition to HP's ProCurve networking line and added to its data center offerings. The acquisition has helped HP keep up with networking equipment vendors Brocade Communications and Juniper Networks. It especially put the company in greater competition with networking giant Cisco Systems, which took aim at one of HP's strongest segments when it introduced blade servers for the data center as part of its Unified Computing System product line.
Also that year HP beat rival Dell in a bidding war for storage software and hardware provider 3PAR, buying it for around $2.3 billion. Though the $33-per-share price tag was around triple 3PAR's share price before the deal, HP was betting that it could boost 3PAR's sales significantly by putting the weight of its vast sales organization behind it in a market where demand for corporate data storage systems is growing. HP vies with IBM, Dell, and Oracle at the top of the server market, and its data storage products compete with those of IBM and the allied powers of Dell/EMC.
The 3Com and 3PAR acquisitions helped ESSN's year-over-year 2011 revenue rise 9% (7% when adjusted for currency).
HP's software business, which accounted for 2% of the company's overall revenues in 2011, encompasses a collection of IT management tools it markets as the HP Business Technology Optimization (BTO) suite (formerly OpenView). Its BTO applications include tools for automating tasks associated with data center and client computer management. Other major software groups include network services (OpenCall), as well as information management. Communications service providers use its OpenCall platform to deploy voice, data, and video services. HP's information management applications range from data warehousing to records management. The software segment enjoyed a year-over-year increase of about 18% (16% when adjusted for currency) in 2011.
The company is building its software unit through acquisitions. In 2011 it paid $10.2 billion to acquire UK-based data repurposing software maker Autonomy, which totted up about $860 million in sales for 2010, a nearly 20% increase over 2009. The purchase bolsters HP's enterprise software aspirations, specifically in content and information management and business intelligence. As its top line suggests, Autonomy also brings strong financials to HP, with consistent double-digit revenue growth and a more than 40% operating margin in 2010.
HP's software purchases the previous year included Fortify Software, a specialist in applications for analyzing source code to detect potential security risks. In 2010 it also paid $1.5 billion for security software maker ArcSight, a developer of applications used to track and monitor data flow throughout an organization to prevent network hacking, theft, and internal fraud. The fact that its products are deployed across a variety of IT assets (guarding networks, data centers, and PCs) made ArcSight an attractive target for HP as it expands its reach past the PC.
HP's other business segments include financial services and a corporate investment arm. HP Financial Services, 3% of revenue in 2011, provides leasing, asset management, and utility programs. Revenue for that segment grew 18% in 2011. HP's corporate investment organization includes HP Labs and business intelligence products.
The growth areas for an enterprise-focused company like HP come from its breadth and depth of new technologies, such as cloud computing, unstructured data, data center consolidation and automation, digitization, analytics, and IT security, helping the company to expand beyond traditional consumer PC sales. While experiencing a 3% dip in revenues for 2009, overall sales were back up 10% in 2010 and then 1% higher in 2011 (but down 0.9% on a constant currency basis).
About two-thirds of sales come from outside the US. The company is developing more business in such emerging markets as Brazil, Russia, India, and China.