Eye on the finish line

Carly Fiorina, HP's chairman, CEO and president has her eye on the high-end sever space where she believes HP should be king. And second place just won't do.

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By  Colin Browne Published  November 27, 2000

Carly Fiorina, HP's chairman, CEO and president has her eye on the high-end sever space where she believes HP should be king. And second place just won't do.

Hewlett-Packard CEO Carly Fiorina won’t settle for second place.

As speculation about an HP acquisition of PricewaterhouseCoopers mounts, Fiorina sketched out the IT giant’s strategy to attack the Internet infrastructure turf dominated by Sun Microsystems and IBM.

Her reinvigorated company is planning to draw on a so-called utility pricing model and the latent power of its services division to run its race. What’s more, Fiorina has her eyes glued on the finish line, and she’s not above stepping on a few toes to get there.

“If we’re going to be in the Unix business, we’ve got to play to win. And that means we’ve got to know what it’s going to take to beat Sun and IBM,” she said in an interview after the company’s high-watt Superdome server launch.

Superdome represents the first refresh of HP’s high-end Unix line in almost two years. By Fiorina’s own admission, the server fills a hole in its high-end product line that was “big enough to drive a truck through.”

Not available until December, Superdome comes in three configurations, ultimately scaling up to 64 processors, 192 PCI slots and 256 Gbytes of memory. HP also has adopted a pricing strategy that lets customers with fluctuating server requirements increase or decrease CPU or storage capacity as needed over the hardware’s life span.

Sun and IBM use similar pricing tactics. “We’ve been doing these sort of capacity-on-demand transactions for a long time,” says Mike Kerr, vice president of IBM’s Web server line.

But HP executives say their utility pricing plan goes one step further in terms of flexibility. It allows customers to scale up to meet peak needs and then scale back if necessary. “You pay for what you use, not more, not less,” says Duane Zitzner, president of computing systems at HP.

The entire 9000 server series and HP’s enterprise storage products will be priced that way in the future.

HP didn’t outline specifics at press time, but it plans to do so next month, says Nick van der Zweep, director of utility computing for HP’s Business Critical Computing division. After paying roughly US$400,000 to have the Superdome system deployed, customers will pay a per-processor service fee as capacity is activated or deactivated, van der Zweep says. Plans call for the strategy to switch on in the first quarter.

“It’s very innovative if you really think about our world right now—not just for the Internet, but if you’re building an internal system that is infrastructural and you don’t know what type of usage you’re going to have out of the box,” says Art Prifti, vice president in the IT division at Citibank, New York. “A box like this could potentially make a lot of sense.”

Still, it will take much more than pricing gimmicks for HP to overtake its rivals. And competitors point out that Superdome servers are still stuck on the starting block. “There’s a lot of ‘next year’ in this introduction,” says IBM’s Kerr.

The Unix server market-share battle won’t be won on benchmarks, but through considerations such as the stability of the operating system, precise targeting of customers and consistent marketing message, says Toni Sacconaghi, systems analyst at Sanford C. Bernstein & Co. “People really recognise Sun as a case study for things that make [companies] in the server space,” he says.

That perception comes despite the fact that Sun’s technology arguably is of an older generation than HP and IBM’s. It probably helps that Sun plans to divulge details of its next-generation Sparc 3 server road map within the month.

“We are right on the edge of responding to customer requirements and customer demands for more flexible implementations in the data centre,” says Chris Kruell, group marketing manager for Sun’s systems product group.

In the first quarter of 2000, Sun accounted for 32% of the revenue in the Unix server market, according to research firm IDC. HP had 26%, and IBM had 21%.

Fiorina would love to see those numbers updated. In slightly more than a year, she has instilled a sense of urgency and competitive drive that previously hadn’t existed.

For its latest quarter ended July 31, HP reported revenue of US$11.8 billion, a 15% gain over the year-ago period. Its Unix server business climbed 13%, mostly in midrange systems, where it has a distinct lead over its rivals, observers say.

“This is a company that was growing in single digits for five years,” Fiorina says. “In December, I said we could grow between 12-15%. The market basically told me it couldn’t be done. We’re now doing it quarter after quarter after quarter, and we’re going to do it again. And we’re going to keep doing it because we know how and we know where.”

Fiorina believes HP’s not-so-secret weapon is its power to assemble a hard-to-match lineup of technologies ranging from imaging systems to servers worthy of Internet data centres, coupled with services that combine the skills of its internal consulting resources with those of its solution provider network.

Never mind that HP’s current consulting division is dwarfed by that of IBM’s. Last year, IBM Global Services garnered roughly $27 billion in services revenue vs. HP’s $2.3 billion, according to Gartner Dataquest. That could change, of course, if HP’s merger talks with PricewaterhouseCoopers go Fiorina’s way.

There’s also the matter of HP’s strategy with solution providers. Sun and IBM have heavily recruited e-business integrators to represent their Internet server lines, while HP has done little publicly to ink similar deals. And Fiorina says she spends most of her time talking to customers, not solution providers.

Yet HP’s latest stand will force solution providers to accelerate their business model transitions, says Randall Katchis, president of New York-based DIS Research. “Do you have to physically process hardware to add value?” Katchis says. DIS Research was among HP’s top three solution providers last year, and HP is its exclusive partner in the Unix server arena.

To help fuel its strategy, HP plans to adopt two new certification programmes this fall to support the rollout of Superdome, and solution providers will receive a margin derived from the initial sale of a Superdome server. But HP plans to handle most of the server’s basic setup and implementation services through its own consulting group.

In addition, HP aims to assign an internal solution manager to oversee every Superdome engagement, whether the sale was made by its direct-sales force or in concert with a solution provider. “The channel partner will own the relationship,” says Jim Geer, worldwide channel programme manager for HP’s Unix server lines. “What HP is interested in is making sure we have the single contact point.”

The third-party certification process is slated to begin this month, Geer says. The first initiative, Always-on Gold, addresses systems integrators and solution providers willing to cede certain predefined Superdome services to HP. It includes five days of training: two days focused on sales and three days on technical design. The second initiative, Always-on Platinum, will cover solution providers and includes a more rigorous four-day programme of technical training and two days of sales training, Geer says.

Paul King, general manager with Melillo Consulting, New York, says his company is mulling certification at the Platinum level to maximise its options. “We still think we play in places they don’t play,” he says. Melillo was an exclusive representative of the HP Unix server line until earlier this year, when it picked up the Sun line after being heavily courted by Sun. “Being exclusive to one platform didn’t make sense for our business model,” he says.

So the Unix server race is on, and Fiorina is speeding up the pace. She’s aiming for nothing less than a first-place finish.

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