HP does a 180 – Now it’s Apotheker’s Company

HP chose the occasion of its Q3 earnings call to drop the bomb. The company that under Mark Hurd’s watch focused on Converged Infrastructure, spending almost $7 billion to buy Palm, 3COM, and 3PAR, is now pulling a 180 in ditching both the PC and Palm hardware business, and making an offer to buy Autonomy, one of the last major independent enterprise content management players, for roughly $11 billion.

At first glance, the deal makes perfect sense, given Leo Apotheker’s enterprise software orientation. From that standpoint, Apotheker has made some shrewd moves, putting aging enterprise data warehouse brand Neoview out of its misery, following up weeks later with the acquisition of Advanced SQL analytics platform provider Vertica. During the Q3 earnings call, Apotheker stated the obvious as to his comfort factor with Autonomy: “I have spent my entire professional life in software and it is a world that I know well. Autonomy is very complementary.”

There is potential synergy between Autonomy and Vertica, with Autonomy CEO Mike Lynch (who will stay on as head of the unit, reporting to Apotheker) that Autonomy’s user screens provide the long missing front end to Vertica, and that both would be bound by a common “information layer.” Of course, the acquisition not being final, he did not give details on what that layer is, but for now we’d assume that integration will be at presentation and reporting layer. There is clearly a lot more potential here — Vertica for now only holds structured data while Autonomy’s IDOL system holds everything else. In the long run we’d love to see federated metadata and also an extension of Vertica to handle unstructured data, just as Advanced SQL rivals like Teradata’s Aster Data already do.

Autonomy, according to my Ovum colleague Mike Davis who has tracked the company for years, is one of only three ECM providers that have mastered the universal document viewer – Oracle’s Stellent and an Australian open source player being the others. In contrast to HP (more about that in a moment), Autonomy is quite healthy with the latest quarterly revenues up 16% year over year, operating margins in the mid 40% range, and a run rate that will take the company to its first billion dollar year.

Autonomy is clearly a gem, but HP paid dearly for it. During Q&A on the earnings call, a Wall street analyst took matters back down to earth, asking whether HP got such a good deal, given that it was paying roughly 15% of its market cap for a company that will only add about 1% to its revenues.

Great, expensive acquisition aside, HP’s not doing so well these days. Excluding a few bright spots, such as its Fortify security software business, most of HP’s units are running behind last year. Q3 net revenue of $31.2 billion was up only 1% over last year, but down 2% when adjusted for constant currency. By contrast, IBM’s most recent results were up 12% and 5%, respectively, when currency adjusted. Dennis Howlett tweeted that it was now HP’s turn to undergo IBM’s near-death experience.

More specifically, HP Software was the bright spot with 20% growth year over year and 19.4% operating margin. By contrast, the printer and ink business – long HP’s cash cow – dropped 1% year over year with the economy dampening demand from the commercial side, not to mention supply chain disruptions from the Japanese tsunami.

By contrast, services grew only 4%, and is about to kick in yet another round of transformation. John Visenten, who ran HP’s Enterprise services in the Americas region, comes in to succeed Ann Livermore. The problem is, as Ovum colleague John Madden states it, HP’s services “has been in a constant state of transformation” that is making some customers’ patience wear thin. Ever since acquiring EDS, HP has been trying – and trying – to raise the legacy outsourcing business higher up the value chain, with its sights literally set in the cloud.

The trick is that as HP tries aiming higher up the software and services food chain, it deals with a market that has longer sales cycles and long-term customer relationships that prize stability. Admittedly, when Apotheker was named CEO last fall, along with enterprise software veteran ray Lane to the board, the conventional wisdom was that HP would train its focus on enterprise software. So to that extent, HP’s strategy over the past 9 months has been almost consistent – save for earlier pronouncements on the strategic role of the tablet and WebOS business inherited with Palm.

But HP has been around for much longer than 9 months, and its latest shifts in strategy must be viewed with a longer perspective. Traditionally an engineering company, HP grew into a motley assortment of businesses. Before spinning off its geeky Agilent unit in 1999, HP consisted of test instruments, midrange servers and PCs, a token software business, and lest we forget, that printer business. Since then:
• The 2001 acquisition of Compaq that cost a cool $25 billion, under Carly Fiorina’s watch. That pitted it against Dell and caused HP to assume an even more schizoid personality as consumer and enterprise brand.
• Under Mark Hurd’s reign, software might have grown a bit (they did purchase Mercury after unwittingly not killing off their OpenView business), but the focus was directed at infrastructure – storage, switches, and mobile devices as part of the Converged Infrastructure initiative.
• In the interim, HP swallowed EDS, succeeding at what it failed to do with its earlier ill-fated pitch for PwC.

Then (1) Hurd gets tossed out and (2) almost immediately lands at Oracle; (3) Oracle pulls support for HP Itanium servers, (4) HP sues Oracle, and (5) its Itanium business sinks through the floor.

That sets the scene for today’s announcements that HP is “evaluating a range of options” (code speak for likely divestment) for its PC and tablet business – although it will keep WebOS on life support as its last gasp in the mobile arena. A real long shot: HP’s only hope for WebOS might be Android OEMs not exactly tickled pink about Google’s going into the handset business by buying Motorola’s mobile unit.

There is logical rationale for dropping those businesses – PCs have always been a low margin business in both sales and service, in spite of what it claimed to be an extremely efficient supply chain. Although a third of its business, PCs were only 13% of HP’s profits, and have been declining in revenue for several years. PCs were big enough to provide a distraction and low enough margin to become a drain. And with Palm, HP gained an eloquent OS, but with a damaged brand that was too late to become the iOS alternative – Google had a 5-year headstart. Another one bites the dust.

Logical moves, but it’s fair to ask, what is an HP? Given HP’s twists, turns, and about-faces, a difficult one to answer. OK, HP is shedding its consumer businesses – except printers and ink because in normal times they are too lucrative – but HP still has all this infrastructure business. It hopes to rationalize all this in becoming a provider of cloud infrastructure and related services, with a focus on information management solutions.

As mentioned above, enterprises crave stability, yet HP’s track record over the past decade has been anything but. To be an enterprise provider, technology providers must demonstrate that they have a consistent strategy and staying power because enterprise clients don’t want to be left with orphaned technologies. To its credit, today’s announcements show the fruition of Apotheker’s enterprise software-focused strategy. But HP’s enterprise software customers and prospects need the assurance that HP won’t pull another about face when it comes time for Apotheker’s successor.

Postscript: Of course we all know how this one ended up. One good 180 deserved another. Exit Apotheker stage left. Enter Meg Whitman stage right. Reality has been reversed.

Google and Motorola: Quick Post Mortem

There’s been plenty of excellent commentary on Google’s $12.5 billion deal for Motorola Mobility Inc. (MMI) over the past few days, and we’re certainly not going to rehash covered ground.

Clearly this is a lot of money that was invested defensively. Money that could have gone into research or acquisitions that would have grown the business or opened new markets.

Whatever.

That thought hit us this morning after reading a NY Times piece on the bull market for patents. It reinforced our thoughts after word of the deal broke: that this was money spent for arming Google against patent predators in courts of law. In this case, it’s predators sensing blood to slow down or at least exact royalties from the Android platform juggernaut.

Of course much of the issue stems from the subjective nature of software patents; that’s a longstanding issue given that the iterative nature of software development. It is simply difficult if not impossible to prove that a software innovation does not base itself in some way on prior invention. Furthermore, the fact that software relies on other software to operate makes the notion of software patents even more dubious.

This doesn’t mean that software developers should get away plagiarism. Although discovery is still underway, the evidence continues to get more damning in the Oracle-Google case over Dalvik, the Android VM that on closer inspection looks like the JVM in sheep’s clothing. The irony is that when Google was still pulling its (J)VM clean room act, the company at the other end of the line was Sun. To us, this is a reflection of Google’s Not-Invented-Here mentality. Would it have killed them to secure a JVM license at the time, as they could have gotten far more reasonable terms from Sun – rather than Oracle, the new sheriff in town.

Just askin’.

From Big to Bigger Data: First Thoughts from Teradata Influencer Summit

It’s kind of ironic that Teradata, which actually invented the big data, data warehouse is being grilled about its big data strategy. Hold that thought.

The crux of the first day of Teradata’s Third Party Influencers conference, a kind of Vegas summer camp for selected partners and analysts, was about how Teradata is expanding its footprint as it competes as an independent in an avenue of giants.

As part of the tour, we were given a nostalgic glimpse at a 1998 – 99 vintage slide showing Teradata’s definition of an Enterprise Data Warehouse; it’s the definition of the classic galactic enterprise storehouse that never really became the single repository of all things analytic over the years. But for organizations like Wal-Mart or eBay, it provide the core research for the big analytic problems that such businesses require.

Teradata has recalibrated this vision to an “Integrated Data Warehouse” which is a more realistic notion in a world that has become so interconnected to the point where it’s ridiculous to think that you can centralize wisdom in a single place. Instead, the idea is to think beyond single purpose data warehouses, not necessarily to consolidate every departmental data mart in sight, but to put together places where you might have several intersecting fonts of wisdom. For instance, in a consumer products company, you might want to stage a warehouse that covers customer and product data, because there are going to be synergies when you start doing analytics to segment your customer base, because product preferences may provide some richness to the demographics.

In the past year, Teradata has done a couple of acquisitions that could reshape its course going forward. Acquisition of Aprimo, an integrated marketing campaign management provider that competes with IBM‘s recently-acquired Unica places Teradata into the applications space, although – like IBM – it still positions itself as not being in the applications business. Sure, Aprimo provides Teradata a chance to sell an additional product to consumer product companies, but today’s session provided little insight as to the long-term synergies that it will provide to the mother ship.

As to the applications issue, well, that’s a natural issue that any vendor in the middle or data tiers has got to confront because (1) the enterprise software market continues to consolidate, and vendors can’t stand still when it comes to growing their footprint and (2) the natural direction to embed more logic in the middle or data tiers will thrust otherwise agnostic software vendors into the apps space whether they consciously intend to get there or not.

In Teradata’s case, it’s been gradually heading this direction for years with its vertical industry data models, so at some point, as the company strives to aim higher up the value chain, it has to add more logic that could be construed as applications. Same thing for IBM with its vertical industry oriented middleware frameworks.

But ironically what drew the spotlight was the plan for Teradata and its other acquisition, Aster Data. Ironic because it wasn’t even on the official program today — Tasso Argyros, who co-founded Aster Data, won’t be speaking until tomorrow. It prompted questions from the peanut gallery as to how Teradata was going to get into the big data market, which prompted Teradata to throw out the challenge to those of us cynical questioners as to how would we define big data. “I hate [the term] big data,” stated Randy Lea, VP of product marketing and management, as the term has become one of those buzzwords that means all things to all people.

The irony of course is that Teradata’s heritage was having a platform that could house bigger data warehouses; it essentially invented the original Big Data market 30 years ago, when Big Data was measured in megabytes. But there is a different vibe to big data today, not only in volume, but the variety of forms – and some say, the velocity at which it comes in. We’d also add, it also has a different vibe when it comes to governance, whether that means archiving or dealing with privacy and confidentiality over data that was theoretically made public in a social network, but not necessarily in the context of a marketing database maintained by a third party.

Although parts of the briefing veered into non-disclosure territory, we still left the day with confirmation of our existing belief that in the long run there will be convergence of traditional SQL data warehouse platforms with the new Advanced SQL technologies associated with MapReduce and other capabilities that allow them to process ridiculous amounts of data, fast. We also believe that there will not only be convergence between SQL and MapReduce (already happening and public with many vendors), but also with the principles of NoSQL data stores. From that standpoint, it was quite interesting that almost every third question from the audience was in some way related to, what will Teradata do with Aster Data?: