HP’s jarring transition to services

September 3rd, 2011 | by Chan Chi-Loong

It’s been a month of controversial news from HP.

When the HP Touchpad was first launched in June, it didn’t do well at all. Lopping off a US$100 discount didn’t move inventory, and TouchPads languished on retailer shelves.

So HP made a drastic move during their recent quarterly announcement in mid-August: they announced the firesale of their Touchpads for US$99, and the discontinuation of all WebOS products like the Touchpad.

Result: a mad rush for HP Tablets, and HP hinting that they might resurrect the Tablet, ostensibly so as not to burn bridges with suppliers.

And oh, they made the small announcement that HP, the number one desktop vendor, was thinking of exiting the PC business entirely.

Pandemonium ensued. HP’s share prices dropped 20 percent on 19th August as investors didn’t take nicely to HP’s sudden jarring unexpected announcement.

Many of the recent annoucements have been attributed to CEO Leo Apotheker, the ex-SAP honcho who clearly wants to shift HP to the more lucrative services sector.

Whether you think HP is commiting suicide or making a bold radical play ala IBM, it’s certain that HP is going down the services path.

They just announced the acquisition of European enterprise software maker Autonomy for US$10.2 billion, which had analysts seeing red as they reckoned the buy as too expensive.

Just last week in Singapore I attended a HP services event, where they were touting their technology services consulting, which had a “five to six times industry growth rate”, according to them.

Of course, when you have such high figures, it probably means that they started off from a very low base. In fact the group was started in just 2009 when HP realized that they could make more money in upselling technology consulting.

How it works is that HP Enterprise services — much of it cobbled from from the EDS acquisition — looks at infrastructure, outsourcing and application services, whilst the technology services group does higher level design and planning services.

They declined to disclose how big the team or exact revenue figures for their technology services consulting group was (citing only global numbers), but their last recent Q3 quarterly result showed global services growing at 4 percent, with services being the highest operating revenue division at 13.5 percent.

The question is, can they transit well into a bigger services play without alienating customers and allies?

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