Friday, February 22, 2013

What have you done for me lately?

A small victory?  The pundits yesterday morning were really down on HP (yup, even more than usual) -- profits will be down 50%, revenues down 8%, sixth straight disastrous direction.  Unstated but clearly implied -- can the team running this ship ever get it right?

And then, a surprising outcome.  Profit, while down, was only down 16%, not 50%.  Revenue, while down, wasn only down 5.6% not quite a free fall.

And the startling conclusion to the article -- HP stock is UP 43%, an astounding 43%, in the past 3 months.  It rose 6.4% for the day.   Hummn....

Maybe some benchmarks are worth considering.

Dell -- with a proposed private buyout -- three days ago announced revenues down 11% year over year, and profits off 31%.  

And VeriFone (remember when HP bought them?) announced yesterday that their profits were about half of street expectations, and the market crushed them, sending the stock price down 43% in an hour.

So, HP did better than its PC rival, altho with commercial PCs down 4% and consumer systems down 13%, it is obvious (see Intel and Microsoft results also) that the tablet world is ending PC dominance.  Oddly, HP's desktop units were up 10%, while notebooks were down 14%.  Total PC biz down 7.7%

More concerning to erstwhile shareholders, though, should be the weakness across the board.  Printing revenues were down 5.3% -- okay, so the Cloud is winning, and printer cartridges are going the way of Fuji and Kodak film.  But the BIG FUTURE BETS are Enterprise Group, Enterprise Serviees, and Software.  How'd they fare?

Enterprise group -- this is the head-to-head hardware server business with IBM, and now Oracle and Cisco among others -- is DOWN 4.1%  What?  This is the core strength of tomorrow, according to some.  Doesn't look that favorable to me.  And Intel's big 64 bit chips -- the Itanium line -- show it too.

Enterprise services -- this is the merged group with EDS, the one that Carly wanted to bet on, the one that showed the most promise under Ann Livermore, that Hurd bought EDS and gutted the leadership morale -- indeed, the one that Gerstner bet on for IBM rejuvenation -- is DOWN 7.1%.   This is an unmitigated disaster.  This should be the report card of the day; no one expects PCs and printers to reach higher glory, but consulting services is THE BET.  What happened?

And software?  This stepchild (recall HP sold VeriFone, got 'blindsided' by Autonomy, and bought Mercury Interactive which had a cloudy ethical history charitably stated), and otherwise has parlayed close to $30 billion in acquisitions into $8 billion sales.  Revenues this quarter?  DOWN 2.1%

It'd be fun to speculate on just why the stock price is up 43% in three months.  Is it simply that folk have figured out that this $115B company isn't going to disappear as soon as we thought, and a $30B market cap might be relatively safe?  Or have people tired of owning Apple (down that same 43% number that seems to go with each company unless you're in 'privatizing' talks)?

Friday, February 15, 2013

Can you top this?

Just when you think HP has endured all the bad news it could get, a new opportunity emerges.

And I'll bet you couldn't have guessed this.  Truth is indeed stranger than fiction.

Chubby Checker, aged 71, has sued HP for violating his name trademark, with a software app called, "The Chubby Checker".  According to TMZ, and today's San Jose Mercury-News (first section in the People column on page 2), the app "enables women to estimate the size of a man's penis based on his shoe size."

This one would have Dave 'n Bill not only rolling over in their graves, can't you imagine that there would be pointed questions from Bill to Dave about Dave's oversized shoes?

According to the Merc story, "a rep for HP released a statement saying 'The application was removed in September 2012, and is no longer on any Palm or HP hosted website'."  Wow!  Wonder how long they promoted it?

Apparently when Checker first asked HP to 'cease-and-desist', earlier in 2012, they refused, and so "he wants a ton of money for damaging his reputation."   The reporter, who commented that 'reporting this makes me proud to have gone to journalism school" went on to observe that Checker "must have small shoes."

The 'ton of money' wasn't cited in the Merc story, but it made the Palo Alto Daily News, at $500 million in 'damaged reputation'.  Must have been a pretty exciting brand at one point.

Now, if that app had been on the TouchPad, who knows...

Thursday, February 14, 2013

Tools of our trade

I had a pleasant afternoon coffee yesterday with Guy Lalonde, who has worked in biotech for many years, musing about what makes innovation work, and when does it get stifled -- not at the "Who is CEO?" level, but at the designer level.  And it hit us both that often it is TOOLS that provide the insight.  A new tool shows up -- say Mathematica -- and all of a sudden, designers have new capability, new insight, and new things happen.  When gene splicing tools arrived, the biotech innovation scene exploded, for example.  Not at the tools level, but at the applications level.  The tools are enablers.

When I was graduating from Caltech, my major professor was Carver Mead, who has become reasonably well known in some circles (he did the work and calculations for 'Moore's Law' for example).  I was trying to figure out how to go to grad school, but at 21 with two children, I needed a job.  Characteristically blunt, Mead said, "you're not much good at classroom stuff, but great in the lab.   And you like new things, being on the edge.  You ought to consider Hewlett-Packard.  They build instruments, and if you think about it, measuring tools have to be BETTER THAN the state-of-the-art in order to measure accurately things happening AT the state-of-the-art.  So you're always on the forefront.  And besides, HP will pay for your graduate studies."

How he knew me that well, I don't know.  But he did induce me to go to HP, as their 98th engineer, before they passed $100 million in revenue (yes, they're a thousand times bigger today than when I first came to Palo Alto).   And indeed, I found that instruments have to be ahead of the state-of-the-art to add value for designers.  It's a great challenge.

What does that have to do with today?  Our coffee klatch concluded that there aren't enough folk focused on tools in lots of areas -- integrated CAE design, IT shop tools for digital media production, system modeling tools, etc. -- anywhere in fact that the market isn't humongous, the tools wind up being esoteric, one-off designs, with little training or support or ongoing integration with other tools into a useful suite.  This is somewhat overdrawn, but it is up to the user in many cases.  Think about Autodesk's Maya in use with NVidia's awesome graphics chips, or Blender's 'bone-locking' capability for rigging in 3d avatar animation.  Fun stuff, hobbyist stuff, or great animation sound and movies.  Depends on your training, skill, and desire.  And the specialists go nuts with this stuff.

But what made America wasn't just specialists, it was generalists.  The greatest thing about Ford and John Deere might have been their modest (at best) reliability.  Every farm boy learned how to fix darn near anything mechanical; 75% of HP's first four hundred engineers came off farms for example.

But tools today are taught mostly to specialists.  So animation tools aren't found at the Moore Foundation or the Packard Foundation, and consequently, no one there can design animation movies to attract donors or to illustrate the fabulous work being done.  Traditional companies, and most foundations, have IT shops focused on Microsoft Office or Google Docs, and Cisco routers.  Geospatial decision support systems, large dataset visualization packages, and even Matlab are next to impossible to find; the business analytics (BA) software packages are rare enough (and obscure enough) that their utilization is modest.

The point, we concluded, is that the tools enable creativity, but the tools are taught and made available by domain and specialty, not so much in a generic or hierarchical manner.  Too bad.

And that brought me back to HP.  HP spun its measurement tools off into Agilent, a company which has spun off more than half of its own legacy.  And HP builds (or vends) mostly high-volume goop, like printers and ink, or plain vanilla PCs, and maybe someday smart phones.  At least that is what the world perceives.  And HP's Enterprise Group builds backbone computing systems and infrastructure, with a touch of BA via the (asinine) purchase of Autonomy.  Couldn't some of these apps be rolled up into some superset of true 'measurement' capability -- of system dynamics and processes, with special tools that are generalized for (somewhat) wider appeal?

I think of the HP-80 and eventually the HP 12C, as the epitome of taking a technology first done for scientists (the fabled HP 35) and making it truly useful for real estate agents and bankers, groups you'd have never thought of for giving them an easy capability for semi-logarithmic calculations and plots.  And no business computer company ever made that connection.   Could that be done again?  Every art department, every marketing group, and every sales team needs attractive, compelling sales documents -- couldn't the Autodesk Maya and Nvidia chips lend huge value here if rejiggered to serve a substantially wider market?  Dream on....

What might be done with these trenchant observations, made on a very sunny February afternoon at Starbucks in Menlo Park?  Best to go grab a bottle of wine for dinner...

Tuesday, February 12, 2013

lunch with an old HPite

Yesterday, I had lunch with Beatrix Infante, who started at HP in the mid-seventies, left in 1989 when she got fed up with the interminable Quality matrices put in by John Young and team to manage the company "Japanese-style".  Saying that she never got used to the 100 x 100 spreadsheet arrays that supposedly told you where to focus, she left to become one of the Valley's historic woman CEOs, carving an enviable career path with several companies, including a stint on Larry Ellison's exec staff and some great start-ups and turn-arounds.

She and a wonderful colleague, Deborah Barber (whose own service at Cray Research was at a fulcrum time for that one-time supercomputing leader), have teamed to "help mid-sized corporations recover the innovative spirit."  Sounds a lot like a call for Intrapreneuring to me.

We spent an engaged two hours, reminiscing about HP and what once was, and where did it go awry.  More importantly, could it be recaptured, even in some small ways?

One of the secrets of the "old HP" was its ability to spawn new endeavors, to 'cut them loose" from the mothership, and let them flourish in a near-start-up mode, far removed from the 'conventional wisdom' and the 'conventional culture' for that matter.  We marveled that Carly Fiorina's strategy may well have been good or even great, but her insensitivity to the nuanced HP Way (or more precisely, the five or six HP Ways that peacefully co-existed) was catastrophic, not just for her own tenure, but for the company.

We differed a bit on Mark Hurd; she didn't challenge the assertion that he is essentially unethical, but did argue that he is operationally deft.  I certainly agree with that, but the cost was huge for innovation where he gutted the R and D units of the company.

Beatrix knew Leo long before he joined HP; she likes him, but thought he was completely out of his element in this supercharged environment.  I suspect Leo would even nod on that one.

But the central question -- what should Meg do?  Or Ray Lane, with whom Beatrix had a long and satisfying association?  And the conclusion we reached was that $120 billion companies have a hard time 'pivoting' to handle new challenges, and boy, are the challenges magnificent.  They are, at bottom, cultural.  Are people really (yet) ready for gut-wrenching change?  Gut-wrenching in direction, in approach, in style, in products and services.  And the clear answer at Kodak who did indeed have the patents for the 'new age', was that the old culture won, until the patient was on life-support.

Whither HP?

PS.  She did find a month ago that Building 3 Upper, at 1501 Page Mill Road, still has free coffee.  And she and I still applaud that vestige of the "old HP"

Monday, February 11, 2013

A great debate last Saturday night

"So, what would YOU do to fix HP right now" was the question.  Hardly rhetorical, but a bit unseemly at a Valentine's Party, don't you think?

The conversation moved to a side room instead of staying in a packed dining room where singles, mostly budding entrepreneurs from other countries, were preening and old guys lacking hair were recounting past triumphs.

I don't believe that the questioner expected an answer.  And of course it'd be presumptuous to think I had one.  So I chose to pick a 'simple example' -- video teleconferencing.  The small group of people all had experience with some form of this, most of them with Skype (after all, FREE trumps most things).

But some knew Cisco Telepresence, and a couple knew Intel's ProShare from some years ago; one was part of LifeSize, and another had Polycom experience.  All had "played with" Google Hang-Outs.  None, however, knew about HP Halo.

The person touting LifeSize said, "I couldn't do my job without it, and let me tell you why..."  Everyone else seemed to be looking at their shoes, or maybe they had dropped a canapĂ© and were trying surreptitiously to locate it for retrieval.

And I couldn't help thinking back to when HP put 300 downlinks for video-conferencing into WW company locations (in 1985), well before the Internet experience, indeed well before ubiquitous email connectivity (Virginia, is there a Santa Claus?), and what it meant for co-ordinating a far-flung disparate corporation at the time.  Eventually, via a somewhat disconnected and tortuous path, HP Halo arrived, and Disney found it indispensable for building and co-ordinating Disney Tokyo from Hollywood.

The learning from that experience drove the development of the best -- some would still say, ONLY -- optically-correct video conferencing system ever produced.  "Look 'em in the eye" is more than a phrase; it is essential to build trust between people, whether they've jsut met, or they're long associates.
Almost all Video Conferencing systems create a subliminal mistrust factor from the opening minute for users, not perceived but 'felt'. This fact alone accounts for much of the adoption difficulty of this technology, but to get designers or users to realize that, let alone acknowledge it -- tough proposition!

Meanwhile, the 'word on the street' is that Logitech is refocusing their corporate targets and LifeSize is possibly 'on the block'.  Cisco's difficulty selling their expensive Telepresence rooms is becoming public knowledge -- and they are too spotty in locale to be very versatile (we are trying to use these for a current project, and my colleague at the fourth largest engineering school in America has to drive seventy miles one-way to get to a Telepresence room which is almost solidly booked for 'real work' when he gets there).   Cisco has not seemingly integrated Tandberg with Webex, and neither one with Telepresence.  Polycom, after some big announcements, seems invisible.  Vidyo, with the best technical solution by far in terms of HD clarity and edge connectivity (e.g. mobile on low BW without dragging everyone else's image in the mud), licensed the technology to Google for Hang-outs, but otherwise has little traction.  No one has even heard the name Vidyo probably, and certainly no self-respecting company would pay royalties to another to use H.264 embodiments that work.  NIH (Not Invented Here) still wins for most software companies, as well as in Congress.

Back to the question at the party -- so what would you do at HP?  Well, it took HP 25 years from its first two acquisitions in printing to come up with the HP LaserJet, and another eight years to have a winning InkJet printer.  Tons of companies tried in the meantime, almost all of them were in fact copier and / or office products companies (names like Xerox, Savin, Canon, Konica-Minolta, even IBM), but when HP got it right,  they got more than 50% of the equipment market for two decades, and 50% of HP corporate profits (for the highest revenue high-tech company on the globe) for the same period.  WOW.  What if they did that in Ubiquitous Video Communications, and it was good enough that it REALLY CAUGHT ON?

The point, of course, to me is that fundamental R and D on fundamental questions for problems that scream for solution has worked in the past -- in fact, that is what built HP reputation and stature for six decades.  Could it work again?

Dream on, Charlie....

Tuesday, February 5, 2013

DELL is the big news today

From Dell's 2012 Annual Report:
Fiscal year 2012 marked the best financial performance in our history. Revenue was $62.1 billion, up one percent from fiscal year 11, and gross margin dollars, operating income and earnings per share rose to record levels. Our enterprise solutions and services business, a bellwether for execution of our strategy, grew six percent to $18.6 billion, and was nearly 30 percent of revenue and almost half of gross margin dollars. Services revenue was up 8 percent, with 75 percent growth year-over-year in new contract signings.
GAAP operating income climbed 29 percent to $4.4 billion, or 7.1 percent of revenue, and non-GAAP operating income rose 24 percent to $5.1 billion, or 8.3 percent of revenue. We delivered GAAP EPS of $1.88, an increase of 39 percent, and non-GAAP EPS of $2.13, up 34 percent. Cash flow from operations grew 39 percent to $5.5 billion, and we finished the year with $18.2 billion in cash and investments.
***************  (End of quote)

TODAY's announcement that Dell is going private, for $24.4B, is a 'sad denouement" for the number 3 PC maker
Lesse now, they just fell from 12.5% to 10.0% of PC share last quarter ("Best Financial Performance in Our History?".  And their stock was down to $9.13 in November, which gave them a market cap of $16B for a $62B revenue company.  Hummn, just about the same ratio at HP toady, at $120B rev and $32.4B market cap.
So, if your're looking for analogous situations to HP's poor performance, this one qualifies.  But up to 30% now for Dell in "enterprise services" -- isn't that the bet being placed by Meg and team?  It surely cannot be tablets.

HP Chromebook

Well, "the big news" is the new HP Chromebook, endorsing the Google tablet with its own version.  Here's the vaunted TouchPad replacement?  Wags quickly noted that "it's a mixed bag" with bigger screen, more battery life, and a higher price.  Looks good in the press photo though.

Remember when HP tried to remarket Motorola phones, and then Apple phones.  Recall HP's camera?

Especially remember the TouchPad?

Kind of a letdown?  Or worse?

Friday, February 1, 2013

What makes a great company?

We had a debate, offline, about the blog re "HP MOST HATED".  The question was "WHAT METRICS do you use to tell a great company from a bad one?"

The most common metric, it would seem is "PROFITS, Growth, and revenue"  These get mentioned in virtually every quarterly report, and most compilations of "RANK"   Meg's $12.6 B anti-profit this year and the negative growth in revenue of some $12 B as well, certainly put HP in the doghouse recently.

The one driving the HATE article in the WSJ was clearly "STOCK PRICE, ROI, ROE, and the like". There is a strong belief (and prejudice) that these two are related, and while they are over time, there can be great discontinuities as we've all seen.  On this score, too, HP is deservedly a whipping boy.

I think back, though, to Dave 'n Bill.  Their stance (and since they owned most of the company, their stance mattered) was that Profits mattered MOST, that growth and revenue were only of value to provide opportunity for employees to advance, and that the stock price would take care of itself if we did the other six objectives well.  And then they'd start the LECTURE

The lecture went something like this:

1. CONTRIBUTION to the customer drives everything -- PROFIT is simply a measure of how much contribution the customer perceives.  So the PRODUCTS, their features, and their qualtiy were paramount.  And to do that took INNOVATION and R and D.  PERIOD, end of story, ... EXCEPT for


Don't hear much about any of these from HP these days, right?

What is the last BIG CONTRIBUTION you recall being announced, descirbed, acknowledged?

EMPLOYEES, for Bill 'n Dave, had several metrics.  RESPECT of every level of contribution (hard to reconcile with the $133M paid to the top five execs under Hurd's admin, and the browbeating he gave democratically to the rest).  But the hard metrics were JOB SATISFACTION and CHALLENGE, coupled with BENEFITS.   These are the kinds of metrics that Glassdoor purports to measure, by having employees vote (kinda like the students rating the professors on campus these days).  And by that measure, Carly and Hurd and Leo flunked the Employee Likeability or Trust metrics, while Meg is  still posting reasonably good numbers.  That part augurs well for a change.  JOB CONFIDENCE, though, is pretty subpar right now, again by employee vote.

CITIZENSHIP, measured by Community Role, Environmental sensitivity, and Ethics, was always HUGELY imporant in a Dave 'n Bill era, and it didn't wane under John Young or Lew Platt.  Carly even held this up, proudly, at a time that the Valley got seduced by back-dating options (and swindling shareholders out of a cool $100 B in Silicon Valley companies).  The irony was that HP's chief counsel wanted Carly to participate and she refused.  Yes, she got big salary, bonus, and severance, while Steve Jobs only took $1 per year.  But Jobs and Apple fully swindled (and got away with the investigations) and HP did not.  Proud moment, but hardly noticed.  Hurd was untroubled by this whole category, and forced his execs to abandon their civic involvements; Apotheker was agnostic as near as I found out.  Again, this is one that Meg Whitman and presumably the Board has been working on, to restore involvement if not luster and leadership.

Not sure what all of this says, but I think it'd be useful if HP tried some R and D and built some new exciting products.   Hard for anything else to go really well without that.