March 31, 2005

A few days ago, Hewlett-Packard has appointed Mark Hurd as its president and CEO. Hurd, the first leader of HP after Carly Fiorina's departure, was formerly president and CEO of NCR, where he started in field sales and worked up his way to become president and COO of the Teradata business unit before leaving NCR.

HP's board sees the company's main challenge as execution, not strategic shift. At one level, the choice of Hurd reflects this priority; indeed, a note from analyst Bruce Richardson at AMR Research explains that, based on the strong performance of NCR after a terrible 2002, "the new HP head has proven he can execute."

But it isn't just a question of operational execution. As a research note from Gartner observed, "IT hardware, which constitutes almost 70 percent of HP's revenue, has become a low-margin business."

IBM's solution to this problem has been to sharpen the focus on services while getting out of the personal computer business. HP hasn't indicated that it will emulate this approach, but it does have to make some changes, Gartner believes: "...some low-profile products and services will disappear. In particular, we expect HP's consumer electronics products, which have high entry costs and low returns, to be affected."

Meanwhile, in the IT hardware arena, Hurd has his work cut out for him, Gartner added. "[Hurd's] decisions must bring profit to the hardware units, but not at the expense of growth." That'll mean cutting costs so as to stay competitive with rivals. "Dell's hardware business, based on standardized products, is growing faster and is more profitable than HP's," Gartner observed.

Source: Line 56