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Introduction
The nuances of Hewlett Packards server business encompasses a barrage of qualitative
conditions; with regards to a fast cycle, Hewlett Packard competed in an oligopolistic market where
significant technical competencies, extensive sales and marketing channels and server software
solutions served as barriers to entry. Garnering market share and substantial return on equity,
Hewlett Packard prospered as its technical strengths and expanded horizontally as an enterprise
solutions provider with computers, printers and software in its product portfolio. Hewlett Packard
prospered as corporations were willing to buy servers from only select vendors who could provide
a reliable server; after-all server downtime constitutes loss revenue for many web based
firms. Importantly, this factor alone however does not make Hewlett Packard an enthralling
business case study. With the advent of cloud based computing, where server demand is offloaded
to an array of servers hosted in the cloud, and with more corporations building their own servers,
Hewlett Packard can no longer claim a sustained market leadership in the server business and no
longer can claim disproportionate return on equity. Ultimately, Hewlett Packard must determine a
recourse to stem the decline in the server business and return one of their most profitable segments
back to growth.
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Horizontal integration
Horizontal integration is the process of acquiring or merging with industry competitors to
achieve the competitive advantages that come with large scale and scope. Horizontal integration
allows companies to grow, and therefore to realize economies of scale. This is especially important
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in industries with high fixed costs. Another benefit of horizontal integration is the cost savings
due to reducing duplication between the two companies, for example, eliminating duplicate
headquarter offices. In addition, horizontal integration can allow the company to offer a wider
range of products that can be sold together for a single price, a strategy called product
bundling. Customers value the convenience of bundled products, leading to differentiation.
Horizontal integration facilitates another strategy, similar to bundling, called a total
solution. Hewlett Packards long-term strategy is focused on leveraging its portfolio of hardware,
software and services as they adapt to a changing/hybrid model of IT delivery and consumption
driven by the growing adoption of cloud computing and increased demand for integrated IT
solutions. This is an important strategy in the industry, where corporate customers prefer the ease
and coordination of purchasing all their hardware and service from a single source. To successfully
execute on this strategy, Hewlett Packard needs to continue to further evolve the focus of its
organization towards the delivery of integrated IT solutions for its customers and to invest and
expand into cloud computing, security, and information management and analytics.
The ESSN segment provides server, storage and networking products that fulfil a wide
range of customer needs and market requirements. Hewlett-Packards Converged Infrastructure
portfolio of servers, storage and networking combined with its Cloud Service Automation software
suite creates the Hewlett Packard Cloud System. This integrated solution enables enterprise and
service-provider clients to deliver infrastructure, platform and software-as-a-service in a private,
public or hybrid cloud environment. By providing a broad portfolio of server, storage and
networking solutions, ESSN aims to optimize the combined product solutions required by different
customers and provide solutions for a wide range of operating environments, spanning both the
enterprise and the SMB markets.
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look for running their own brands or developing new business opportunities. At the same time,
cloud market developing is another strong threat. Traditional leading server brands face
increasingly intense competition. There is a trend that companies are increasingly considering x86
servers for mission critical and other traditional scale-up solutions and non-x86 servers for
innovative, cost effective, and integrated solutions for analytics, cloud, mobile , and social
platforms. So, how can these traditional server market leaders find their own new niche in the
market become extremely critical.
Hewlett Packard, IBM and Dell are the top 3 leading brand. The competition is intense,
especially among Hewlett Packard and IBM, which changes the first place position from quarter
to quarter in the past five years. Please see below diagram. IBM has obvious peak in Q4, while
Hewlett Packard has more stable revenue among the whole year.
IBM
Dell
Oracle
Other
While looking at Q2 2013, IBM becomes the market leader again. What worth mentioning
is Dell and Cisco were the two big winners in Q2, because they find isolated server market
opportunities. Dell has great sales performance on its density-optimized servers, which are
favoured by large service providers and Internet companies. Dell has 60.5% market share for this
density-optimized servers. Although Hewlett Packard also launched their Moonshot server for the
hyper scale market, it didnt bring Hewlett Packard as much advantages as expected. Ciscos
increase also relies on the booming market for hyper scale servers used in virtualization data centres.
Below we use SWOT analysis to summarize Hewlett Packards current position in the
server market.
Strengths
Weaknesses
Threats
Recourse Strategy
In order to stem the rapid convergence and delay economic time, Hewlett Packard must
realign their business segment to anticipate changing business demands from their web technical
customers. While Hewlett Packard could previously delay economic time by relying upon the
naivet of corporations whose core competencies exclude server maintenance and implementation,
Hewlett Packards current generation of customers have the technical prowess and core
competencies to circumvent OEM server manufacturers entirely. Companies like Google, Apple,
and Facebook do not demand the bundling of server software tools and extraneous server
components that allowed Hewlett Packard to command premium margins in the standard cycle;
effectively, they evade Hewlett Packards value chain and staircase strategy of tying customers
OEM hardware and enterprise services.
Children Eating
In order to negate the core competencies of web technical companies, Hewlett Packard
must employ two tactics. Hewlett Packard must become a children eater and trade margins for
market share. Rather than bundling extraneous software and extra components, Hewlett Packard
must cater to the technical prowess of its customers. By building bare bone servers that do not
carry a software mark-up or extraneous component mark-up, Hewlett Packard can use its previous
fast cycle strengths to pivot away from its current extreme fast cycle conditions. Given that the
primary customers of Hewlett Packard servers demand certainty and reliability, with web based
companies server downtime constitutes loss revenue, Hewlett Packards reliable brand reputation
should give barebones servers a premium.
Realignment
The second tactic Hewlett Packard must employ similarly relates to realigning products
closer to technology companys needs. The majority of operating expenses for companies like
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Google or Apple lie in server electricity costs. In order to minimize operating expenses, these
companies have prudently shifted from power hungry Intel X86 chips, which frequently command
higher margins, to low power efficient non-proprietary ARM chips; the same chips that are often
found in cell phone, as they are touted for their minimal electrical imprint. However, there exists
a significant first mover advantage that Hewlett Packard must utilize. Since most server software
is written for the X86 architecture, server software for chips based on the low power ARM
architecture must be redeveloped. Since most of this software is open source and no company can
capitalize upon it, Hewlett Packard is misguidedly reticent to developing hardware and software
for ARM servers. Developing hardware and software decouples the staircase bundling that Hewlett
Packard has previously enjoyed, selling hardware and server services. However, Hewlett Packard
must align their portfolio in line with the needs of these technology companies and become children
eaters.
Demand Creation
Competing server companies like Dell and Lenovo will readily release ARM based servers
if Hewlett Packard fails to develop their own. Hewlett Packard can differentiate itself from other
OEM manufactures because it can develop ARM based server hardware, ARM based server
software tools, and an integrated solution; Lenovo and Dell cannot since this strays from their core
competencies do not lie in software solutions. Although this strategy entails writing server
software for low margins implied with ARM processors, Hewlett Packard has the competency to
develop an integrated hardware and software solution for ARM based servers commanding a
market premium (Google and Apple do not want to recode all their software tools). Hewlett
Packard must employ this children eating strategy lest Dell and Lenovo capitalize first off the
ARM server business.
Brand Differentiation
Although Hewlett Packard must drastically adopt changes to react to changing consumer
demand from their technically competent customers, it must adopt a different strategy for
companies that still demand a bundled hardware and server solution. Hewlett Packard must
differentiate between its bare bone server offerings to technology based companies and fully
integrated server solutions. Companies like Goldman Sachs or McDonalds, have core
competencies that are not aligned towards server maintenance. Therefore, they must be convinced
that it is worthy to pay premiums for an integrated solution. Hewlett Packard must differentiate
these products by complementing their server hardware with solutions for their less technical
clients like, integrated 24/7 customer support and enterprise firewall solutions. Hewlett -Packard
can also continue to preserve their strong margins along this customer segment. Hewlett Packard
should continue with their staircase strategy of selling hardware, software, and maintenance
solutions to their less technical clients.
References
http://en.wikipedia.org/wiki/Computer_server
http://blog.iweb.com/en/2012/01/history-of-servers-in-pictures-from-1981-to-today/1959.html
http://www.ehow.com/about_5120951_computer-servers.html
http://en.wikipedia.org/wiki/Hewlett-Packard_3000
http://www.ealmanac.com/1658/numbers/the-seven-dwarfs-of-the-computer-industry/
http://pages.stern.nyu.edu/~adamodar/pc/blog/Hewlett-Packarddeal.pdf
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http://bizlib247.wordpress.com/2013/01/09/Hewlett-Packard-acquisition-of-autonomy-and-a-88billion-write-off/
http://www.scribd.com/doc/29975750/Merger-and-Acquisitions
http://h30261.www3.Hewlett-Packard.com/phoenix.zhtml?c=71087&p=irol-faqeds
http://www.idc.com/getdoc.jsp?containerId=prUS24285213
http://www.idc.com/getdoc.jsp?containerId=prUS24136113
http://www.crn.com/news/data-center/240160546/q2-server-data-hp-ibm-take-big-hits-as-dellsurges.htm
http://www.gartner.com/newsroom/id/1935717
http://www.gartner.com/newsroom/id/2580515
http://www.hp9825.com/html/hp_2116.html
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