Andreessen on Meg

You heard it here first (well, maybe second...)

Bloomberg's Willow Bay, a winsome lady to be sure, caught up with Marc Andreessen at the Milken Institute conference in Los Angeles today, and got a ten minute interview on tape.  See it at
http://www.bizjournals.com/sanjose/news/2013/04/30/what-marc-andreessen-has-to-say-about.html?ana=e_du_natvid&s=article_du&ed=2013-04-30&u=p3hytg4uJDjp+I5PDYTDxA08920494

At 8;20 into the session, ending at 9:25, Marc got to her question about HP, and how long before the Board tires of Meg as CEO.  He never missed a beat, saying "the Board has her back" and "she is doing great" and he thinks that the 'recent rise' in HP stock price shows that the public is beginning to understand that.

Specifically asked if he would stick with the Board, given all the shareholder discontent, he said, "I come from a long line that sticks with difficult challenges" and then he closed that line of inquiry by saying, "Remember, HP is the company that built Silicon Valley, and HP DESERVES the best"

Nice combative, dogged perseverance

Silicon Valley 150

The San Jose Mercury-News has published an annual "Top 150" High-tech company list for the past decade; yesterday's Sunday paper carried this year's compilation.  The headlined story on p.4 says "HP's bad year weighs on sector", and it goes on to note that "HP accounted for nearly half of the annual revenue for the SV150 sector" and its $12.7B loss for the year meant that the entire 35 company segment of "business information technology" made no money.  The astonishing thing to me was that HP's revenue matched the other 34 companies combined, which included Cisco and Oracle, pretty large companies by most standards.

HP is still huge, in other words, second only to Apple in high-tech (did you see that IBM's revenues were five percent lower in last week's report -- and the stock market thinks they can do NO WRONG). Inexplicably, or maybe it is HP's Moonshot program, IBM's hardware revenue fell an astounding 17 percent, prompting Lenovo to hint that they are in line to buy out IBM's x86 server line.

Lessee now -- IBM sales are down five percent, hardware sales down 17 percent, and the market took their stock down four points on 190 base.  Their market cap is $210B on revenues of $105B, a 200% level.  HP, with sales down six percent, PC sales down eight percent (against an industry average of 14%) and enterprise hardware sales down 4%, outsold IBM by $5 Billion.  Market cap = $37.8B, or 34%.  IBM is worth six times as much for its falling revenue as HP?  Whew!  Those Autonomy losses will someday be hehind us, right?

I know, I know -- you're going to say HP has never been profitable like IBM, and it is profitability that drives stock price, not revenue.  Well, not quite true historically (check out the 1987-1992 period for example at IBM vs HP), but certainly a fair comment.  And PCs are a bigger dinosaur than enterprise systems for IBM, yes.  And printers are going the way of all extinct species, true.  So, it is grim.  But I'm not fully persuaded.  Apple, even at the 'collapse' of their stock price -- down from 705 in September to 395 this morning -- is valued at 220% of revenue, and their next hit won't be soon enough to save the onslaught of myriad competitors in their primary space.

Odd world

HP alumni lots of places

At COFES last week, I met Chris Smith, a long-time sales person for HP.  Chris, now with Cloud Pragmatics in Sunnyvale gave a great session on the dynamics of choosing to put valuable company data into "the cloud" as well as some of the pitfalls of running a service data-center.  Apropos the discussion about HP Moonwalk, and what the chances are that it can drive renewal activity for HP.  Chris spanned John Young through Leo Apotheker... and didn't look much the worse for wear.

Last night at the UIDP Caltech meeting, Todd Cleland, who is now the Industry Relations Director for the University of Washington in Seattle, spent time talking about his time at HP -- 1988 through this past fall.  He spent several years in the Periphersls CTO office, reporting to Patrick Scaglia who reported into Shane Dickey.  So Todd spanned John Young through Meg Whitman.  He had marvelous stories about many research and development efforts they tried in order to broaden the printing and imaging lines -- some of them were truly exciting ideas as I listened.  The issue: "How do you get a $50M business to be noticed by a $25B operation?"  He had chapter and verse on this, not unlike the stories I got years ago from CEO Lew Lehr and the 3M CTO, Les Krohl -- or the lament at GE from CTO Roland Schmitt and his chief Biz Dev guy, Fred Geary, not to mention the input from Ian Ross at Bell Labs.  These are stories worth capturing in a monograph; they illustrate so well what goes wrong in larger company innovation.  The Industrial Research Institute (started 75 years ago by the National Academy, I learned on this trip) has done a fair amount of work on this topic.

I also met Lou Witkin last night, who had a full 41 years at "the mother ship" HP, leaving last year with "that incredible package".  He started in 1969, hard to imagine, so he overlapped both Dave and Bill all the way to Meg.  Now that's a tour!   His expertise at HP included much time in University relations, and in Contracts and Negotiations.  So he is running his own consulting firm, Witkin Consulting, in the Bay Area.  Again, nostalgia for a moment, and then discussion about whether HP is 'coming back'.  He is cautiously optimistic, as were the other two.

Hope springs eternal.

Tough BBC interview for Meg

Shana Lynch noted mid-day in yesterday's Silicon Valley Business Journal that the BBC interview Wednesday with Meg Whitman focused more on the pecadillos and Board machinations than on substantive matters.  I watched the interview, and was struck by the calm but penetrating manner of the interviewer (whose name I did not catch).  He persisted on two questions -- first, for those in England, the Autonomy 'deal' and the choice by HP to 'try it in public', and second, "HP is nowhere in mobile"

Meg comported herself well, in terms of camera presence, but the answers might surprise us here in the States a bit.  To a direct question about "okay, you've been there eighteen months with NO PROGRESS.  What is going on?" she replied, "On the contrary, we've made great progress getting the people of the company re-engaged in believing in the company and its direction.  And the people are the most important asset -- if they're not believing, it's really tough.  And we have the most coherent product line-up -- hardware, software and services -- that we've had in a decade."  Powerful words, and from what I'm hearing (throughout elements of the company), some truth in that set of assertions.

On the two points, though, that were the tough part of the interview:

First, re Autonomy and taking the story public, she said "we have no choice in America -- if there is a write-down, we have to take the facts and the reasons public".  The interviewer pursued this, arguing that, Yes, HP overpaid compared to every other company's evaluation at the time (which I think is substantially correct), but NO, you don't have to blame it all on improprieties in accounting.  Meg looked uncomfortable, but stayed true to the message.  The surprise for me was she went on to say that this is a very important technology (with which I agree), that the Autonomy employees still with HP are working very hard to make it more capable, that it will matter a lot to HP, and she ended with this quote: "It is almost a magical technology" (which, truth be told, has to be the perspective for most lay people for so many of our computer-based capabilities such as search, facial recognition, inference-engine decisions).  But text analytics -- almost magical?  Whew, a bit over the top in my view

Second, re mobile devices, Meg bristled a bit, and said, first of all, we're a factor now in multi-purpose laptop/tablets (e.g. the top comes off and it becomes a tablet -- see my blog last week re the Ultra Envy II), and 'we're a factor in tablets with our new Android Slate 7 (I must have missed the market splash on this one somehow).  But the new news is that "while we're intent on having a smart phone, we haven't yet figured out how to do that without being a 'me-too' player" which contradicts her statements a few weeks ago at the SF analyst briefings.  Good for her for 'fessing up, and great to hear that she doesn't intend to play 'me-too' just to be 'in the space'.

Nothing about HP Moonshot, which is perhaps curious except that the interviewer was focused elsewhere.  By comparison, it's hard for a General Motors executive to point to jet engines when the interviewer is saying 'your cars suck'.  The purpose for the interview, acc. to HP sources and Lynch's story, was to launch Moonshot in the UK.  So much for the plan...

Maybe I'm just an eternal optimist, but I think this company HP is starting to show signs of life.

The travels an analyst has to do

Patrick Moorhead does get around.  His contributed post to Forbes a couple days ago was followed by his thoughts about Intel's rumored TV box yesterday.  He was acclaimed the #1 voted analyst in the tech world, cf. Apollo Research Oct 2012, so I often read him and like to follow his work.

The San Jose Mercury-News is only two days late to carry both stories.  The SF Chronicle is focused elsewhere, of course.  The Merc stories are worth study.

Moorhead about HPs MOONSHOT in the Merc (small insert on page D2): "the system is as innovated (a noun?) as we have seen, offering a modular system that lets customers choose the right architecture to optimize their service for specific workloads and their own in-house applications."  End of quote.  A quote that could have been written about Spectrum in 1986 (in fact, was written then).  What's the big deal?

Moorhead was interviewed for the Business front page story by Steve Johnson of the Merc about Intel's TV after Raymond James analyst Hans Mosesmann said, "We are skeptical... we believe an Intel Internet TV platform with be a tough sell."  Moorhead volunteered that "I actually believe the time is right for this; there is demand for this, absolutely."  Based on Moorhead's interviews with Intel 'officials', he said, "This is going to be a very interesting one to keep an eye on."

I spent time at Intel, a decade or so.  Their track record on 'innovation' is spotty.  But I like Moorhead's odds, and they, like HP, need a hit in their lineup.

Recalling that John Dvorak was always quoted on futuristic stuff until he missed the iPhone story, one wonders who will prevail here in the cut-throat analyst pundit game.

But, back to Moonshot.  What Moorhead actually wrote, that the Merc turned into plain vanilla, was:
"HP launched today a game-changing line of servers called the HP Moonshot 1500.  It is easily their biggest server launch since HP introduced the industry's first X-86-based-server in 1989.  (Do any of you recall that HP led back then?).  At a high level, the Moonshot 1500 is the beginning of the slow death of the vanilla, homogenous server and the rise of specialized servers for specialized workloads for scale-out data-centers.

The point he makes focuses on the wide variety of new data-center needs with smart phones, tablets, etc.  He says, and I believe him, that, "While data-centers have grown significantly over the last 10 years, we haven't seen anything near the growth that will happen over the next 5-10 years.  ... Current enterprise data centers aren't prepared for the onslaught of devices coming their way.  Its not as easy as adding more homogenous servers, or even virtualized servers" which he goes on to explain in detail.

Moorhead concludes a lengthy, detailed piece by saying: "If HP's Pathfinder Innovation Ecosystem (wow there's a mouthful) gets quick momentum, it will be very hard to replicate, which gives HP a leg up in thse markets.... It's going to be a wild ride."

This Moonshot, make no mistake, is what Meg and Ray Lane have been betting on, along with Marc Andreesson and the others.  I think it will indeed be a game-changer, for a 'tomorrow world' where Apple, not HP, will have more edge-devices, but HP (more or less shared with IBM, hummn) will have the center.  Could be worth buying a few shares?

HP Labs update

So, notes from several "retirees" from HP Labs are worth summarizing

First of all, from our book HP Phenomenon, at one point circa 1975 CEO John Young credited HP Labs with creating half of HP's total revenue, which really meant that initial HP Labs work launched divisions which then turned the ideas or prototypes into viable businesses.   By 1988, Young proclaimed that the number was now 87% (which measured the fact that all of the peripherals group, all of the computer group, all of components group, and about half of Medical and Analytical groups originated with ideas from HP Labs.

Logic Analyzers, I used to insist with some vehemence, had NO help (just hindrance ) from the Labs.

All of this preamble is important to put in perspective the following metrics:

In 1966, a year after creating HP Labs (with incipient output of the HP 2116 minicomputer and the HP 9100 desktop calculator), HP Labs had 207 folk, 75 projectw, and 18% of HP's R and D budget.

In 1998, HPL had 900 scientists and 300 support folk in five locations (Palo Alto, CA; Cambridge, MA; Bristol, England, Haifa, Israel; and Tokyo, Japan.

In 2003, HPL Palo Alto had 500+ folk

In 2007, HPL Bristol had 167 folk; axed by 72 in a draconian move in 2009

By 2011, HPL worldwide was reportedly down to 400 folk

As of last Friday, HPL is being cut to 247 people worldwide.

In 1967, HP had four members of the National Academy of Engineering, and one in the Natioanl Academy of Science.  In 1987, HP had sixteen employees voted into the National Academy of Engineering, America's highest honor for designers, inventors, and engineering managers.

In 2009, HP had two in the NAE, none in the NAS

Put this alongside the Idea Factory book about Bell Labs in its heyday, and the parallels are striking.

No value to engineering research any more?  No wonder no 'hot products' are coming from HP, and in particular, no new "renewal segments" of business to take the place of dying PCs and wilting ink sales.

Board members step down

Despite HP's dogged determination before the vote that the Board stability was all-important, the new reality is that the vote was pretty damning.  So, some big changes, pleasing many shareholders.

Whitworth, the activist board member, is in as interim chairman, Lane is still on the board, but stands down from Chairman, And Hammergren and Thompson walked.  Well, that sort of surprised the analysts!  And to some degree, me too.  Honorable actions by the three to step down, don't you think?

Love to have been a fly on the wall for those discussions.  I'll bet Meg had a lot to do with it.  I have been more impressed as we watch Meg's performance than I ever expected when she started.  And I have to say, in public, that I think Ray Lane is first-rate in general, never mind the brickbats and the low confidence vote by shareholders.  He had a lot more to do with Oracle's success for years than he got credit for, and he has been solid with respect to Enterprise Computing, which HP still has to solve.

The other two -- Hammergren and Thompson -- are non-entities, never visibly did much, no great loss.  Wachovia was a total failure in the bank meltdown, McKesson is a dealer channel distributor of pharma, maybe had a little input on Best Buy shelves???  

But again, the notes flying around the Internet -- five Chairmen in ten years; compare that to Dave Packard, in that seat end-to-end for fifty-five years.

And now, some openings....  Who will want the $325,000 for six half-day meetings per year?

Another NY analyst gives his USEFUL opinion

I don't get it.  Where do these pundits come from?  Today's news -- San Jose Mercury-News, p.D2 -- "Apple taken off Goldman list".   The first paragraph says "Goldman Sachs dropped Apple off its list of 'most highly recommended' stocks Tuesday as it joined other analysts in reducing expectations for a company that hasn't had a revolutionary new product since the iPad in 2010."

It goes on to say "Goldman analyst Bill Shope said the iPhone 5, introduced last fall, hasn't sold as well as expected.  He said the company now needs some real hits ... in order to boost the stock price."

Peter Swanson, AP journalist reporting the Shope story nationally, noted that Apple's stock price of $427.90 is down from the peak $705.07, reached the day the iPhone 5 went on sale last September.  He neglected to point out that this is a decline of 39.3% in six months, the ssame six months that HP rose 25.3%.  He also failed to note that prior to February 2012, during all the gains from iMacs, iPods, iPhones, and iPads, each a revolutionary new product -- that Apple never topped $400/share.

The hysteria in other words that took Apple to new heights, some 75% above all historic numbers, was a one-year hype by Wall Street, including Goldman Sachs.

The best report of the day was that of Philip Elmer-DeWitt, writing for Apple 2.0 magazine: "Apple first appeared on Goldman's conviction list in December 2010 and during its 28 month stay it managed to outperform the S and P 500 33.8% to 25.9%. But ... Shope's clients might have been better served if he had mentioned last fall that Goldman Sachs was selling Apple, lowering its considerable holdings in the fourth calendar quarter by 1.2 million shares."

Why do I care what Shope writes?  Because in the same "flurry of notes issued Tuesday", Bill Shope downgraded Hewlett-Packard from Neutral to Sell, citing the shareholder discontent with the Board.

And yes, there is dissatisfaction with the Board, but the media (e.g. Wall Street) is playing this all out of proportion.  The guy Shope is a whack job on both counts -- forget him and his backward looking advice, and remember instead that Goldman Sachs profited "the most" in the sub-prime mortgage meltdown, just prior to their own liquidity crisis.  For which Allan Sloan, at Fortune magazine, said "we asked mortgage mavens to pick the worst deal they knew of" and it came up Goldman Sachs.

So there you have it -- sell HP, and forget Apple.  Well, we'll see.

A GREAT HP PRODUCT?

I darn near fell out of the chair at breakfast yesterday with Michael Loftus, ex-VP Product Marketing for AdStream.  He was touting his latest excitement -- a new HP laptop computer, the Ultra Envy II.  His point -- sort of done as an "in my face" kind of thing -- was that this was the first HP product he'd liked in a decade, and definitely the first time that he compared it favorably to any of the other PC vended products.  He whipped off the display and showed us the tablet version, exclaiming how it out-did his iPad and then some.   I was speechless -- the last time I saw this kind of excitement for an HP product in the PC space was for the original ThinkJet, which dates back 21 years now.  

No, on second thought, the Vivienne Tam notebooks caused a brief sensation in 2008; one of those marketing glitz things that sold a few thousand units....

"WHAT IF?"  Recall that ad campaign?  What if HP could actually build compelling products again.

James Stewart weighs in

Last Friday's NY Times (friday March 29) carries an analysis of the recent HP Board vote, and the meaning -- CAN A BAD BOARD EVER BE THROWN OUT?

It is a solid article, with some investigative reporting, going to Vanguard and other key shareholders for info on how they voted their sizable holdings.  One gaffe -- Vanguard denied voting in any way related to possible business they do with HP, instead voting "singularly" for the shareholder.  Comments from readers picked up on this point, with pithy remarks of their own.

Stewart, who seldom pulls his punches, calls this possibly the worst board ever of a Fortune 500 company -- great lines, but this stretches both the truth and credulity just a bit.  Remember Enron?  Lehmann Brothers?  Goldman Sachs?  Even Sears, or Boeing when it was caught for massive illegalities, Lockheed in the 70's needing a bailout, GM in 2008?  How do you compare flagrant dishonesty, total crooks, and bankruptcies with the simple ineptitude and maddening emotional trauma of recent HP?

Corning, recall all those Corningware dishes and most of America's fiber optic network -- their stock for a $4B revenue company in business for 150 years went from $106 to $1.33 in a year (10/21/2001 to 10/7/2002).  No one urged throwing their board out.  Today, the stock has "recovered" to $13.30, after spending four years in the mid-20's, ending in 2009.  HP's done better.

Stewart also resurrects the Carly years, the Hurd pretexting, and the Leo hiring/firing, alongside the Autonomy deal, which he calls possibly the worst acquisition in history.  Again, methinks this is deep water -- lots of contenders over the years; AT/T w NCR, Compaq w DEC, Oracle w Sun in high tech circles; A/OL and Time/Warner; eBay with PayPal should have been made in heaven, but went awry (lessee now, who was running eBay at the time?  Oh, yes, Meg).  MCI and WorldCom?  Huge miss, and WorldCom had some of the Enron stench on it, never mind that iconic Vint Cerf was there.

Daimler 'lost' $34B of a $40B acquisition price with the abortive Chrysler deal on the surface of it; probably twice more in operating losses -- Autonomy pales alongside that.  Mattel nearly went bankrupt from buying the Learning Company; Compaq did so from the DEC acquisition.  Sprint 'lost' $30B of its $36B acquisition price with Nextel in 2006.

The problem reading these great NY Times analysts is that their sense of history is about four minutes long, and they present facts that any fourth-grader could disprove on an iPhone before recess.