What next for HP PSG?

ITP.net speaks to Salim Ziade, GM of HP PSG Middle East about what HP will do with, or without, its PC division

Tags: DesktopsHPHP Middle EastMergers and acquisitions
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What next for HP PSG? HP PSG needs more focus to tackle the challenges of the hardware market, says Ziade.
By  Mark Sutton Published  September 15, 2011

Following the announcement that HP is considering future operations without its PC division, the Personal Systems Group (PSG), ITP.net spoke to Salim Ziade, general manager of HP PSG Middle East, about the future for HP going forward, what it means to customers in the region, and what a standalone PSG would be like.

What is the reason for the decision to spin off or sell the PSG business?

For many years we believed, and the results show that we were right, that the economies of scale, justified having a corporation with multiple businesses. The advantages of size, economies of scale, having access to customers through multiple ways outweighed the cons of being less agile, and as management, you cannot focus 100% on every one of your businesses.

But the world has changed over the past two to three years. There have been a lot of mergers, on both the enterprise side, we have seen Oracle-Sun for example, and the emergence of a trend of consolidation in enterprise business, around a few very big players. Everybody in the top five has grown, and taken share from the smaller companies.

We have seen the same in the PC space, it was more or less the same business for many, many years, but in the last few years, the trend started with the HP Compaq merger, Lenovo buying IBM PCs, Acer going on a shopping spree with Packard Bell and Gateway, so there has been a consolidation, and then Apple came in and broke that ecosystem, with multiplication of devices.

With this happening, PCs cannot just be run as a side business. That [business] is growing, gaining share, but with little management attention, and maybe not a lot of investment, so the company needs to make a choice, does this conglomerate approach still work, or is it better to split, and have the management and resources, to pick one battle at the time, and we have made that decision.

 What does the purchase of Autonomy mean for the Middle East?

It would mean the same for the Middle East as everywhere else. HP has announced in Leo's March strategy speech, that we want to make inroads into the enterprise space up the chain, meaning business intelligence, consulting, data centre and cloud, and this should allow us to hone our value proposition for the enterprise market.

What sort of services presence does HP have for Middle East already?

In the Middle East region, in emerging markets, if I compare them to the more mature markets, we definitely have a much higher weight of hardware versus services, software and consulting than you would have in mature markets, for obvious reasons. Those services and software are mostly directed to the Fortune 1000 companies, that run massive data centres, with thousands of users. The number of companies that are targeted in our market for those software and services is de facto limited, and they are typically, a few months to a few years behind the technology adoption curve of mature markets.

Taking this into consideration, the services weight in the Middle East and Africa is lower than say the US. It is an opportunity, because those emerging markets will catch up, we have a new enterprise services VP, Bassem Bouzid, an extremely talented and experienced individual, who has moved to Dubai, to build and accelerate HP's services in Middle East, Mediterranean and Africa region. He is hiring a lot of people, building a huge team.

Does that mean the locally there will be a bigger impact if PSG is spun off? What would become of HP without PSG?

What is nice about the region, I work with my two colleagues for Enterprise business and IPG (Imaging and Printing Group), we have a quite balanced portfolio, obviously with a bit more hardware, more servers than services, but overall it is quite balanced. PSG by itself would still be in the top three or four technology vendors in the Middle East, and HP without PSG, would still be in the top two, if not the number one technology vendor in the region. So by themselves, the two entities would still be juggernauts in this market.

What about the ability to offer customers the whole stack of offerings, would you stand to lose business if you can't offer everything?

A few years ago, we regularly had procurement, and RFPs. tenders and engagements that were across the board. There is very little today. People are specializing, so you would have a tender that focuses on PCs, a tender for services and so on. The leverage there is almost nil today, there are really [only] a handful of customers in the region that still do consolidated framework agreements.


Is the desktop PC dead?

I am a big believer that with what is happening now, there is a trend for a revival, especially on the consumer side of the PC. A lot of people I talk to, see that the PC still has a lot of advantages. It is extremely stable and extremely reliable, compared to any other computing devices, the failure rates are between three to five times lower on a desktop compared to any other computing device. They can usually take loads of data, and usually have a big screen, so to work on it is very convenient. Because of the spread of information, more and more people are looking for a base, that would be the centre of their computing world. It is becoming more obvious that the best possible base is the desktop, with a big screen, that is secure at your home, synchronizing and accessing your data across multiple desktops. That value proposition seems to be making some traction, and my belief is that we will see the emergence of a certain category of desktop that will become the centre of your personal network, your personal data centre if you like.

HP has dropped the TouchPad, but would PSG, in whatever form going forward, have to go back to tablets and smartphones, in order to be able to address all of the consumer's needs?

The bigger picture is we are at a crossroads today. In November, we will reach 7 billion people on the planet. Out of the 7 billion people, you would have around 1.1 billion, depending on the estimates, that have access to IT. That gives you roughly 15-16% of the world's population, which means 85% of people just don't have access to it.

Out of those 1.1 billion people, there are roughly 100-200 million people, 2-3% of the world's population that are the premium IT users, that have multiple devices, smartphones, tablets. The remaining 1 billion have access to one device, and then there's everybody else that doesn't, so the strategy today for us is really threefold, we have reorganized our business unit to address those. One is the premium computing division to address those top 2-3% that are a huge market, don't get me wrong, one of our major competitors that has achieved huge market capitalization only talking to those 2%; there will be a business unit looking at that, at premium computers, and we will have to look at what those people want, and see what we can offer.

There is what we call volume computing, the next one billion, it is a huge market as well, and in that market today we are by far the leaders. Those people want computers, and that market is not going down, we are still growing it.

Then there is the third effort, which is how do you get the next billion customers? They might not access IT in the same way the first billion accessed it. This [area includes] education, we are working on some proof-of-concepts with Iraq, with Jordan, with Egypt about very low cost computing for schools, for ministries of education.

[The next billion also] want something affordable, but reliability is extremely important. When you are typical employee living in Dubai, making 20,000 dhs a month, you might buy a laptop or PC as an impulse buy. When you are making $200 in Lebanon, or India, and you are buying a PC, it's two month's salary, it is an investment, not an impulse buy. So you want something reliable that will last for a few years, and HP has a role to play to offer reliable computing solutions.

Could a standalone PSG afford to continue to invest in programmes such as CSR, investment in education?

PSG on its own would be a $41-42 billion company [by revenue], at this side it would be around a Fortune 60 company, which means we would be bigger than Cisco or Coca-Cola - that's not a small company!

Second, the PC business has a beauty about it, you don't need cash to run the business. It is very profitable, we have been announcing close to 6% profit every quarter for the last few quarters, so the margins are not declining, the margin has been growing over the past 3-4 years. In 2005 the margins were a couple of percent, then moved to 6% now, and have been stable around that. This is a company that needs very little cash to survive, to do business and grow, delivering two to two and a half billion dollars of profit every year, so it is a very viable standalone company, that generates enough cash to invest and grow and do R&D.

Will this situation mean anything for the Imaging and Printing Group?

That same question came out in internal meetings during the announcement, ‘if you are splitting up to focus on enterprise, why would you keep IPG?'. There are two answers to this, one strategic, one financial, the strategic being much more important than the financial.

There is one important trend in IT, it is very simple, in the IT industry, the ‘T' the technology, for many, many years, has been the dominant letter out of the two, technology was driving the business. Information was there of course, but what was driving it was new processors, new hard drive technology, new Windows. The ‘I' over the past few years, is taking the lead now. Today what is driving the IT market is the information, your information, how do you access it, what do you do with it, how do you store it. Technology is important to support that information management, and this is a trend that we believe will continue.

Buying Autonomy is an important investment to strengthen our offering that we have already, into managing information smartly. If you see what IPG has been doing over the past few years, it is moving from printers and printing, and integrating that into information management and document management, and the announcement of Autonomy, has some potential synergies with IPG. The strategic intent is to offer an integrated information and document management value proposition.

Obviously there is a financial element as well, IPG is an extremely profitable business, for us, it can raise lots of cash, and it is good to have a business that generates excellent cash in a consistent way, when you also want to finance growth and finance acquisitions and investment in new business.

What has been customer response to the news?

There is saying that it is through hard times that you know your true friends, I was very positively surprised that the general answer from distributors, dealers, retailers and customers has been overwhelmingly positive. We obviously went to great extent to proactively reach out to as many people as we could to explain the change of strategy, to reassure our customer base that we are here to stay. We were the leader yesterday, and we are planning to be the leaders tomorrow. There are absolutely no questions being asked about our services, the warranty on our product, whether the organization will still be there, and with one or two exceptions out of the 200 partners that we talked to, everybody told us that they trust us, and they will do their best to help us succeed.

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