Martin Hingley's Blog

HP FYQ111 Highlights

• Revenues grew 4% to $32.3 Billion
• Net Profits grew 16% to $2.6 Billion
• HP was market leader with 3.6% of the IT market in 2010
• It has strong shares in server, PC, peripherals and stroage systems markets
• Has spent more than $5.3 billion in acquiring companies in 2010
• Is being threatened by Apple and other more vertically integrated competitors

HP announced its first quarter financial results this week and we were lucky enough to listen and ask questions of the top EMEA executives. The company’s results put at the top of the tree in terms of both the IT ($3.6T) and ITC ($6.3T) markets in 2010. ITCandor’s evaluation of HP’s market share by product, region and country are shown throughout in the figures of this report. Our question was about the roll out of its appliances created in the Microsoft partnership across EMEA and the channel consequences. We will leave that analysis to a future post.

HP Was The Leading IT And ITC Vendor In 2010

HP held a 3.6% share of the worldwide IT market in 2010 – ahead of Samsung, IBM, Apple, Sony, Dell and Nokia (see Figure 1). Please note that we include mobile handsets in the IT category. The major threat to its position comes from Apple, which grew its revenues by 63% in 2010. Samsung also grew at double HP’s 9% for the year (recalculated to the calendar year as part of our standard analysis). With its fingers in almost all IT pies it is perhaps difficult for HP to grow significantly faster than the overall market. We believe it is very dependent on a ‘horizontal’ market definition, relying on broad groups of software, channel and service provider channels to supply additional layers of support for its products. Apple, Oracle’s (39%) and even Cisco (19%) growth demonstrates the financial success more vertically integrated approaches can take. As we’ve discussed before the test of new partnerships, such as that with Microsoft for appliances, will be if they allow HP to present integrated products as a result.
HP’s largest market shares are in the server, peripheral and PC areas. Its Outsourcing business took a big uplift on the acquisition of EDS; both peripherals and storage systems have seen a slow annual decline (see Figure 2)

Looking at HP’s market share by region (Figure 3) shows the extent to which it has made up for a long-term decline through acquisition. This is particularly true in the Americas, where the addition of EDS, 3Com and 3Par has added disproportionate revenues there. It is a major challenge for HP to build its market share in Asia Pacific in general, especially in Japan (where there are very strong local vendors) and China (where it has yet to make a strong play).
More details of our assessment of HP’s IT market share in 2010 by country are shown in Figure 4. Its highest are in the UAE, Turkey and South Africa, while its lowest are in India, Japan and China. Perhaps due to stronger competition it tends to have lower market shares in major countries such as the UK, Germany and USA.

HP Continues To Address Strategic Aims Through Acquisition

HP has always used times of poor economics to expand its operations through acquisition. This year has seen some important moves. In particular:

• Vertica (announced in February, rumoured at $200m) strengthens its presence in the data analytics market
• ArcSight (completed in October for $1.5 billion) adds enterprise threat and risk management
• 3Par (bought in September for $2.4 billion after a price battle with Dell) enhances its SAN business
• Fortify Software (completed in September) allows it to improve security in application life cycle management
• Stratavia (completed August) helps it optimise application development in hybrid IT environments
• Palm (bought in July for $1.2 billion) gives it a presence in the Smart Phone market – especially with its Web OS operating system

So we know it’s paid over $5.3 billion in total in the last year. On the whole these companies enhance and strengthen the business: 3Par and Palm are similar to the 3Com acquisition the previous year, giving HP the ability to meet more of its customers needs from its own resources. As the company seeks to become more vertically integrated, it will, no doubt, buy more.
HP has also announced partnerships with Verizon Wireless, Microsoft for appliances, Quest and Oracle since September.

Balancing Cloud Offerings Is A Challenge For HP

As one of the leading systems vendors HP has been very active in helping big customers build internal Cloud Computing from the beginning. The implementation tasks for large data centres create good business irrespective of whether they should be described as Cloud or traditional deployments. At the same time it offers a number of Cloud services, such as MagCloud and Snapfish in its printing and imaging business. Last month Enterprise Solutions announced its Hybrid Delivery, balancing the need for on-premise and hosted solutions, which we see as replacing its earlier CloudStart initiative.
Since HP made $18 billion revenues in the last year from outsourcing (business process and infrastructure technology), it has to do some careful positioning of its own Cloud services. We suspect that HP will avoid competing head on with Amazon and Google in providing high profile public Clouds for now. As always it is promoting the cost savings associated with standardisation and automation, although it probably has less to offer in the development of multi-tenancy hosting. This is likely to save costs for the customer’s customers.

Some Conclusions – A Collision Course With Apple

Apple’s revenues will overtake HP’s in 2 years time if their revenues continue to grow around their current rates. Therefore it is important for HP to use its acquired skills and experience to find stronger growth beyond its current business. As we have argued it is unlikely to do so by launching Amazon-type public Cloud, or through building a Smart Phone business quickly through its Palm acquisition. It is becoming more competitive – especially in proposing its networking solutions (partially acquired with 3Com) against Cisco and we expect to see a strong push behind SANs with the addition of 3Par.
We believe it will continue to try hard to expand its business internationally, especially in the African continent despite the current unrest in the north. Our strongest advice is to embrace Matrix Integration in contrast to the Vertical strategies of Oracle, Apple and others. We argue that vendors must work hard to avoid locking-in their customers. HP has the ability to promote the use of standards in a different way: rather than devaluing and/or ignoring Open Source components, it should actively stress the openness and transparency of its solutions – giving customers a clear off-ramp if they want a change.
How do you see HP’s prospects? Please let us know by commenting on this post. Please also contact us if you are looking for data and analysis about the development of the IT and ITC markets.

Filed under: Cloud Computing, HP Tagged: | 3Com, 3Par, Apple, ArcSight, Cisco, Cloud Computing, Cloud Start, Fortify Software, HP, Hybrid Delivery, MagCloud, Matrix Integration, Microsoft, Nokia, Palm, PC, peripheral, Samsung, Server, Snapfish, Stratavia, Vertiga