Can HP Be Going Soft On Hardware?

"In essence, HP is making a dramatic bid to reinvent itself -- and the rest of the Internet industry -- with a new business model that relies less on hardware revenues while allowing it to capitalize on the revenues its service provider partners will generate using new Internet technologies from HP." So says Tom Kucharvy, president of Summmit Strategies (Boston, Mass.).

If successful with its new E-services strategy, HP could not only leapfrog over IBM and Sun Microsystems but rewrite the rules of competition in the server industry. Although HP's stock price is enjoying a bit of bounce from the previous several quarters, many skeptics still think HP execs can't get out of their own HP Way.

Kucharvy thinks that new approach leveragesa unique financing strategy which has the potential to make its preferred partners into some of the Internet's most promising startups. For example, this past March, HP was selected as the exclusive partner to launch, provider of Interent procurement services. As part of the alliance, HP has provided hardware platforms, hosting services, operations infrastructure, deployment support and co-marketing.

According to Kucharvy, "with programs targeted at different classes of companies--including e-servicesstartups, established companies with new e-services ventures, and established companies moving toward e-services -- HP plans to evolve into a financial utilitythat acts more as anequity partner (under the aegis of HP's Financing and Complements Group) with service providers than as a traditional financing company.

For example, this past April, HP invested $35 million in BroadVision (Redwood City, Calif.) to work on portal technology. More recently, HP formed an alliance with Tanning Technology (Denver, Colo.) to provide data warehouse "rescue" service. Several weeks ago, Ariba announced record third quarter revenues of $12 million while BroadVision announced record revenues of $24 million for the second quarter. Shares of Tanning , on the other hand, rose 23% for their IPO during the week of July 19.

The FCG is the third-largest technology financing company in the world, which will offer a broad range of pay-per-use and venture-financing options, as well as its traditional term-based funding. "HP is approaching the Internet's next era with some real strengths, and a strategy well suited for capitalizing on many of the key trends that we believe will reshape the computer and communications industries during the next fewyears," says Kucharvy. "Of course, to reverse its course of the past few years, it will have to execute quickly and keep moving forward."

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