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Cisco memo slams HP strategy

Divesting PC business will hurt other businesses, including networking

By Jim Duffy on Tue, 10/04/11 - 8:20pm.

Cisco is gearing up its sales force to exploit the turmoil currently enveloping rival HP. Cisco sales EVP Rob Lloyd apparently circulated an eight-page internal memo detailing what Cisco views as the impact of HP exiting the tablet, smartphone and PC businesses on the company. CRN has a leaked copy here.

HP will hurt not only its own bottom line but that of its partners, the memo claims. Lopping off the PC business specifically will hurt sales of other HP hardware, such as low-end servers, by reducing purchasing power and economies of scale with customers and partners.

The move, if it happens, might also render HP's enterprise software and networking businesses as point product solutions lacking an overall end-to-end IT infrastructure play. Indeed, HP's about face in tablets and smartphones means it may not have an end-user interface device with which to sell ancillary products, be they hardware or software.

The memo doesn't mince words when it comes to the impact exiting these markets will have on networking:

...Leo Apotheker's attempt to move HP from a commodity hardware player to a value pkayer has created uncertainty for the networking business - the loss of purchasing power and the ability to price lower as part of a larger campus bundle will make it difficult for HP to continue its low-margin strategy and "Almost Good Enough" messaging. At the same time, HP is also unlikely to transition to a value player in networking, given the significant R&D investment required. This lack of differentiation, combined with HP's weakened brand, will make it difficult for HP to compete in networking.

The memo also suggests that as HP undertakes the PC divestiture and restructures to become more of a software and services player, it could be distract upper management, lead to confusion and concern among customers and partners, and ultimately do more damage in the long run.

Cisco believes HP will not reverse its decision to exit the PC business now that Apotheker's gone and Meg Whitman is in as CEO. PCs will continue to decline and become commoditized by tablets and other devices; at the low-end, "post PC" HP will face pricing and profit pressure from Dell and the Chinese in servers; and at the high-end, HP will be outspent by Cisco and EMC on product development - HP's R&D is down to 2.5% of revenue even though it was 6% of revenue in 2001, the memo states.

And in software and services, HP will have a hard time winning share against IBM, Oracle and SAP outside of specific niches where it is strong, like medical archiving and project and portfolio management, the Cisco memo states.

And in printers? Removing the PC businesses removes a critical link that those peripherals had to networking and the entire enterprise, and will disrupt the supply chain efficiencies HP's enterprise group enjoyed with HP's data center server and software group, the memo asserts. In effect, divesting the PC business removes the bond between HP's other hardware, software and services groups, resulting in a disjointed company, the memo suggests.

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