Continued lackluster corporate spending on technology is seperating the strong from the weak quickly in the high-tech industry.
That was certainly apparent yesterday as Dell Inc. and International Business Machines Corp. detailed continued growth and new hiring, while Hewlett-Packard Co. stumbled badly and fired three top executives.
The gloomy outlook has dashed hope among tech executives and investors that the sector will soon return to the supercharged growth of the late 1990s. Pummeled again yesterday, the tech-heavy Nasdaq Composite Index is down 12.5% for the year, and 19% from its peak in late January.
Curiously, demand for high-tech goods remains good. World-wide shipments of personal computers rose 15.5% in the second quarter, and Commerce Department reports indicate that U.S. companies’ spending on hardware and software increased 15% in the second quarter from a year ago.
H-P’s troubles were rooted in its unit that makes computer servers and storage devices for corporate customers, which suffered from a botched software installation and aggressive discounting. The unit posted an operating loss of $208 million on revenue of $3.4 billion, contributing to a surprising earnings shortfall.
Chief Executive Carly Fiorina called the blunders “unacceptable” and promised that the unit would return to profitability in the current quarter. In a terse memo issued a few hours after the disappointing results, Ms. Fiorina announced the departures of three executives, including Peter Blackmore, head of the H-P’s business sales division, who used to work for Houston-based Compaq before its merger with H-P.
Of course, now almost two and a half years after the questionable H-P – Compaq merger that Ms. Fiorina heavily promoted, could it also be said that that “blunder” is “unacceptable” and that Ms. Fiorina should be shown the door? Stay tuned on that one.
H-P is increasingly caught in a squeeze between Dell’s low prices for basic corporate computers and IBM’s increasingly innovative high-performance computers. Both rivals have been gaining market share against H-P since its acquisition of Compaq in 2002. As a result, H-P has been shifting toward lower-profit businesses. H-P’s personal-computer unit, which has relatively low gross margins is growing faster than its servers and storage business, which typically has much higher gross margins.
My sense is that this is not going to end well for Ms. Fiorina.
Houston's Clear Thinkers
Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.
I’ve long thought the shine on her star was gone, but I’ve been proven wrong before — as in, how in the world did she survive a highly publicized proxy fight with a namesake of the company?!
Once she’s done destroying the HP culture, though, who will run the place when they finally chase her?
Kevin, my sense is that Fiorina survived the proxy fight not so much for the right reasons — such as her vision for the merged company — but because of the utter lack of creativity in the vision that the longtime family board members had. Having survived it, she had nothing to rely on other than proving the validity of the merger, which she clearly has not done.
My sense is that H-P needs to bring someone in replace Fiorina with a real nuts and bolts operational background, similar to what Continental Airlines did when it hired Bethune. The company has some very fine products. It simply seems that Fiorina does not appreciate that the emphasis needs to be on promoting those products and effectively rather than chasing rainbows.
I think it’s unfair to blame the merger alone on HP’s performance. It’s very difficult to imagine HP or Compaq doing significantly better alone.
Compaq, I agree. H-P, I’m not so sure. It’s traditionally been a profitable company that has grown and become distracted from its core business since the merger. The market still assigns no value to H-P’s businesses other than its printer business. My sense is that H-P would have been far better off keeping the $20 billion it spent in the Compaq merger, concentrate on the printer business, and not worry about trying to compete with the Dells of the world.