HP and Hitachi are not splitting up

What I had thought was going to be a real yawner of a storage announcement by HP last week turned out to be pretty interesting once I looked under the covers and discovered a tiny bit of intrigue.

The announcement, made at the company’s HP World user conference, addressed the continuation of its relationship with Hitachi. HP OEMs Hitachi’s high-end storage systems (the ones positioned against IBM’s Shark and EMC’s Symmetrix).  It turns out that the two companies will be continuing their relationship at least through 2008.  More of the same, right? Ho-hum? Maybe not.

First, some background.

These systems (HP calls them the StorageWorks XP line) are a key infrastructure component of HP Adaptive Enterprise initiative, and play an important role in the company’s utility computing strategy.  HP and Sun OEM Hitachi’s big storage boxes because they have no internally developed product of their own at the high-stakes end of the storage spectrum.  This is in no way a bad thing, and in fact is typical of the way the industry works.  Make-buy decisions like this are a classic exercise for management at all technology companies…  at least it is for the successful ones.

Sometimes companies decide to develop products internally.  They absorb the development costs, and roll the product out as quickly as they can.  Their margins may be higher, but they must live with the risk that their developers may not get the product out the door in a timely fashion, or that development costs may exceed their estimates.

At other times it may make more sense to purchase technology from other vendors who can build the product more efficiently.  Such efficiency might result from any of a number of reasons.  The other company may already have engineering talent that can get a particularly technology to market faster, or they may have better manufacturing capabilities, or may already have the product in their warehouses ready to ship – these are typical causes, but there are of course many others.  The good news when companies OEM products is they don’t have to absorb development costs themselves; the down side is that their margins are slimmer.  On the other side of the relationship, the supplier absorbs the development costs, but can sharply limit its sales-related expenses.

The point here is that one company determines that another has a competitive advantage when it comes to a particular piece of technology, and takes advantage of it. If we consider the entirety of a company’s product set this means that when a company turns to another for a technology, it can then direct its internal investment towards the things that it does best.  It gets efficiencies at both ends.

Now, for the intrigue (such as it is).

What happens if you are a company in such a relationship, and a competitor tells your customers that you and your supplier have had a falling out, and that the alliance is in danger of breaking up?  Your potential customers who need a high-end solution must now plan on looking for it elsewhere, and …  well, you can see where that might lead.

A rumor floated around last week that HP and its supplier were becoming estranged, that the marriage was in jeopardy (suddenly I feel like a talk show host on morning TV), and that HP would have to turn elsewhere for a high-end solution. 

One informant tells me that the story was started by a competitor.  If that is true, it’s hardly surprising.

I’m not sure where the tale actually originated, but it is clear that it was groundless.  The announcement indicates that HP and Hitachi will be working together for at least another five years. Between the two of them they took in about $140 billion dollars last year.  It is likely both will have some staying power.

Next week: Aliens developed my management system!