HP CEO Whitman Pledges Stepped Up Server Battle With Dell


Investors are certainly giving Whitman credit for driving improved earnings performance. HP shares were up in after-hours trading to $2.90, or more than 13 percent, to $24.13 after the $120 billion computer giant, for the quarter ended April 30, posted non-GAAP diluted earnings per share of 87 cents per share, well above the Wall Street consensus of about 81 cent per share.

HP sales for the quarter were $27.6 billion, off slightly from the $28.1 billion Wall Street consensus, and down 10 percent compared with the same period one year ago when HP posted $28.35 billion in sales.

Whitman said HP must strike a fine balance between market share and profitability as it battles Dell in the industry-standard server market. "We did walk away from deals that were really problematic from an operating market perspective," she said. "Now what the team understands is that can't be an excuse. That means we've got to figure out how to compete. We have to make sure we have got the right product designed for the right market segment appropriately featured -- not over-featured -- and we have to make decisions about what deals we must win."

HP is going to be focused on deals that are "sticky" as opposed to deals that are "strictly transactional," where customers are looking for simply the lowest price rather than developing a long-term relationship, said Whitman. "That is the balance that we are putting in place," she said.

One segment where Dell is having success against HP is with cloud service and Internet providers that are building out data centers with aggressively priced, custom-designed industry-standard servers.

HP CFO Cathie Lesjak admitted as much, noting that HP saw "further weakness" in sales to cloud service providers. Lesjak also blamed the overall poor industry-standard server performance on "poor execution coupled with continued macro-pressure and an intensely competitive pricing environment."

"In our mainstream business, we struggled with our entry products and saw pressures in volume [servers] and some areas of the value side of the business," she said.

One HP partner, who did not want to be identified, said the Dell pricing pressure is taking its toll on HP partners that have focused on "transactional" server sales rather than building out a strategic solution-focused business with customers. He said he expects his HP data center business to be up significantly this year.

Another top executive for an HP solution provider, who did not want to be identified, said he sees the Dell server share gains as part of a market share push to help drive the Dell leveraged buyout. "Dell is trying to gain market share to make its business look better than it is," he said. "Long term, that is simply not sustainable."

PUBLISHED MAY 22, 2013