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HP’s Growth Strategy: Acquisition?

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In a post-Fiorina world, HP said it wants to accelerate its strategy.

What that strategy is, though, has not been exactly clear. Interim CEO Bob Wayman and new chairman Patricia Dunn said they would clarify that point after HP hires a full-time replacement for Carly Fiorina.

Mark Stahlman, managing director of research at investment bank Caris & Company suggests that any growth coming out of HP — especially for its Rich Digital Media vision — would more likely involve more
acquisitions, as opposed to spending it on research and development or splitting up the company.

“The ‘HP Way’ is characterized by not having a strategy, Stahlman
told “Yet here we have the board saying here
‘we have a strategy, but Carly is not the right person to lead us.'”

HP executives declined to be interviewed for this story.

The problem, however, according to Stahlman, is that HP’s overall
strategy is vague on details save one: Rich Digital Media. It’s a term
Fiorina first used during an analyst day in May 2004 to describe a new
total addressable $400 billion market — the largest growth opportunity of the total $1 trillion distinct markets that comprise the digital
entertainment and IT industries.

Stahlman said the declaration may have
been more of a knee-jerk reaction to some statements by IBM CEO Sam
Palmisano criticizing HP for a lack of clear focus.

Carly Fiorina

Carly Fiorina

“At that meeting, Fiorina told us that HP’s strategy is to
participate in all of these markets but that it wanted to be the leader
in Rich Digital Media,” Stahlman said, adding that if HP continues its
Rich Digital Media strategy, keeping the company in one piece is

“Does that mean that they need to keep their Superdome servers? Yes,
it helps companies render movies,” Stahlman said. “Does it mean that
they need AMD Opteron? Yes, to stream the movies. Does it mean that they
need a semiconductor division? Yes, PCs are turning into TiVos. How
about PDAs [and smartphones]? Certainly, they carry the media around and control the other devices,” he continued.

“And as for printers, that is where the company has
the most experience in Rich Digital Media and the largest supply of
intellectual property.”

So despite increased pressures from Dell’s PC
sales and IBM’s worldwide services, HP’s problem,
according to Stahlman, is that it has not invested the same amount in
R&D as its competitors.

“Microsoft’s R&D investment is going into Longhorn, which is being
paid for by its sales of Microsoft Office,” Stahlman said. “IBM pays for
its on-demand technology with its consulting business. Sun is
investing in SPARC and Solaris, but doesn’t have a revenue stream to
support it — yet. HP has ink cartridges to pay for its R&D, but it
didn’t invest. Instead, Carly fired people.”

Stahlman said that may all change with the return of HP board member
Tom Perkins. The 73-year-old founder of venture capital firm Kleiner Perkins Caufield & Byersas (KPC&B) and a director at HP from May 2002 through March 2004 returned earlier this month despite HP’s age requirement cutoff of 70.

The suggestion here, according to Stahlman, is that Perkins will help HP fast-track any of KPC&B’s companies for an acquisition.

While high-profile names like Amazon, AOL and Google are probably too far out of reach, Stahlman says there are still many companies out there for HP to acquire.

“HP has talent in merging. I consider the Compaq deal to be the
biggest success in technology integration,” he said. “They beat every
target they set for themselves in a year. They acquired a high-end
computer line in DEC and technology from Tandem. They unified the
computer talent. They eliminated a competitor and wound up with much
better assets in PCs.”

Roger Kay, a vice president at IT research analyst firm IDC,
disagrees with Stahlman saying an acquisition at this point for HP would be fatal.

“HP needs to finish digesting what it has swallowed,” Kay told “If HP keeps piling on companies, it will be
like ancient Rome. All of these tribes sign on to federalize, but it
implies there is a lot better integration than there is. The alchemy of
innovation is very difficult stuff. Unlike Dell, which makes smaller
acquisitions and then strips away the culture, HP has cultural issues.”

Stahlman also added that Carly Fiorina was not fired because she
didn’t hit her numbers.

“Carly was fired because Carly does not believe in growth,” Stahlman
told “She is the only senior executive who got
up and said, ‘The PC industry is no longer in a growth industry. We will only grow at double GDP year over year. Get over it.’

“[Microsoft CEO Steve] Ballmer and [Bill] Gates talk about growth. [IBM CEO] Sam Palmisano talks about growth. [Sun Microsystems CEO] Scott McNealy talks about growth. What a growth person does is they take R&D and use it to develop the business. [When she was hired in 1999,] Carly sold herself to the board as a person who could fire people,” Stahlman continued.

“The real problem is that
Carly refused to manage for growth; exactly what the board told us
yesterday. Plain and simple, she would not accelerate the strategy.”

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