Acquisitions Key to HP's 3-Year Plan

Split up HP? CEO answers financial analysts with some other ideas.
Carly Fiorina is touting HP's acquisition strategy -- such as its fabled merger with Compaq -- as key to propelling the company to its current status in the IT marketplace.

''We cannot say absolutely every step has been perfect, but we can say with confidence we are where we intended to be,'' Fiorina said during a presentation to securities analysts. ''We're the clear challenger to IBM.'' Depending on market alignment, HP ranks No. 1 or No. 2.

The chairman and CEO of the Palo Alto, Calif.-based computer and printer maker outlined the company's blueprint to build on last year's product and services sales of $710 billion. The robust 3-year plan includes revamping its server, storage, and software product lines as well as new services that feed HP's ''Adaptive Enterprise'' utility computing strategy. Fiorina said the future would most certainly include an acquisition or two.

''We are putting together a portfolio for a specific purpose in a different way from Dell or IBM,'' Fiorina said. ''The services market continues to be fragmented and we are focused on the spaces where we made the acquisitions. We continue to invest more in R&D and certain acquisitions that fill in the sweet spot.''

For example, HP confirmed Tuesday that it has acquired Riverstone Networks' XGS technology platform and associated software licenses for $28 million. Santa Clara, Calif.-based Riverstone will retain the rights to the operating system, but the technology is slated for products under HP's ProCurve Networking Business umbrella. HP said it plans to use the technology to develop a new class of hardware it said will complement its ProCurve Adaptive EDGE Architecture.

Fiorina's comments come on the heels of a controversial report by Merrill Lynch technology research analyst Steven Milunovich. The outspoken strategist recommended the company realign product segments into printers and computers or by market into consumer and enterprise. While none of the other analysts present posed a similar challenge to HP brass, Vyomesh Joshi, HP executive vice president Imaging and Printing, defended the division against competition.

''We sell a million printers a week, while Dell is selling 60,000,'' Joshi said.

Still, Fiorina and Executive Vice President Ann Livermore said the company's non-printing divisions would not see a break-even financial recovery until 2005. Most of the current losses were chalked up to acquisitions around HP's software management space such as TruLogica and Novadigm. Fiorina pointed out bright spots, such as its OpenCall voice and mobile services software.

''There is some pass through with this strategy, but this is a tremendous value for us because it drives services and sells more of our hardware,'' she said.

In preparation for that growth, HP said it will focus on 107 named accounts and extending its enterprise program to some 1700 Tier I accounts. The company is also expected to shift its sales forces overseas to Europe, the Middle East, Africa and China. Fiorina said HP would target areas specific areas such as network & service providers, manufacturing, finance, public sector and small- to medium-businesses.

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