But Wait, There's More

Merrill Lynch Calls for HP Breakup--Again

Hewlett-Packard did its Digital Experience Launch of 200 new products last week, and analysts at Merrill Lynch took the occasion to once again advise HP's upper management to hire a chief operating officer and to seriously consider splitting up the company into pieces. Steve Milunovich, the top IT analyst at the brokerage firm, has been saying for months that HP can be sensibly split into a consumer company and a commercial company, or can be divided into digital imaging and computing halves.

For the third year in a row, HP has launched a boatload of new products around the back-to-school and end-of-year IT budgets. And while Milunovich applauded the launch of the Vivera branding for HP's printer ink, which lasts 100 years, as opposed to 60 to 70 years with normal ink cartridges (and thereby justifies HP's premium prices and props up the profit margins of its Printing and Imaging unit), as well as new Photosmart printers, flat panel TVs, DVD home theaters, and other consumer products, he complained in a report released this week that the products seem a little late to market, with school soon to start.

Milunovich also believes that HP's need to emphasize functionality over low price with its imaging and printing products--and thereby to ensure continued profits that help to prop up its server and storage units--will give Lexmark leverage with customers. He makes a good point.

But the argument that all profitable divisions should be set free, while making financial sense in the short term, is not necessarily a good strategy in the long term. If IBM had believed the nay-sayers more than a decade ago, there would have been five Baby Blues that would be tearing one another to shreds today in a way that may not have yielded profits for these individual companies or decent products for consumers, because of the relentless cost cutting and competition.

Competition can go too far, and just as spinouts and mergers can. What IBM chairman and CEO Louis Gerstner correctly recognized was that IBM was far more valuable as a single entity than it was as a bunch of smaller companies. Upon taking over IBM, Gerstner must have also seen that it was in a much worse state than anyone had imagined and that it wasn't really possible to break up the company. Keeping IBM whole was his only real option, and he knew that the profits from one division could shore up other divisions as he cleaned house and got IBM into shape. It took four to five years for this to pan out, and Gerstner had the benefit of the ERP, Y2K, and dot-com booms to boost IBM's prospects.

While HP's current state is somewhat different, in that it is the result of a recent merger of two behemoths, whether Milunovich or the rest of Wall Street likes it or not, in the long run, HP needed Compaq as much as Compaq needed HP, and neither was going to profit without doing something radical, like the merger. Maybe HP should have bought Dell? Maybe HP should have done a lot of things. But it bought Compaq, and HP's management is committed to seeing this merger through, even without a boom to help tide it over. Wall Street had just better get used to this idea.

Sun Says Server Volumes Will Lead to Profits

As we report elsewhere in this issue, according to statistics compiled by Gartner and IDC, shipments of servers at Unix server maker Sun Microsystems boomed in the second calendar quarter. Sun, which has been beaten up in the press and analyst community since 2000 (and often with good justification), is obviously pleased that it appears to be turning a corner.

So why are Sun's server shipments growing at a rate considerably higher than even Dell's? Larry Singer, vice president of global information systems strategy at Sun, says that the company fired on three cylinders. In the high-end server market, customers who were running out of gas on the UltraSparc-III processors have been adopting the dual-core UltraSparc-IV processors for their Sun Fire servers. Singer said that demand was particularly strong in Sun's core financial services customer base. He also said that shipments were pushed up dramatically by acquisitions and upgrades of Netra telcom servers among communications and service provider companies. Finally, this was the first quarter Sun was shipping its Sun Fire V20z Opteron-based servers.

"The marketplace is getting over the FUD [fear, uncertainty, and doubt] from HP and IBM that Sun is going out of business any day now," says Singer. "The shipment numbers are good for the industry as a whole and great for Sun in particular. The uncertainty is disappearing and people are buying Sun stuff again." Singer reiterated a common theme among Sun's top brass these days: that a focus on shipment volumes will eventually lead to revenue increases and then on to profits. "This is a virtuous cycle, and we are on it."

IBM to Hire 18,000 in 2004

IBM likes nothing better than to rub salt into the wounds of its rivals, so it was no surprise that the company told the Wall Street Journal that it plans to hire 18,000 new employees in 2004, on the day that Hewlett-Packard told Wall Street that it was going to miss its numbers in the fiscal third quarter, which ended July 31, and fired its three top sales people.

Earlier this year, IBM said that it was going to hire about 15,000 people and offshore about 3,000 jobs from the United States, but now the company says that it will offshore only about 2,000 positions and hire 18,000 people worldwide, with about 6,000 of them being hired in the States. IBM's employment worldwide peaked in 1991, when it had 344,000 personnel, and within three years it had slashed 125,000 workers as its core mainframe market imploded. (People who sell computers into glass houses should be careful about throwing stones, eh?) With the hires this year, IBM's headcount will be a little north of 330,000 employees.

HP Reseller Gobbles Up IBM Reseller

The consolidation of the value-added reseller (VAR) channel continued last week, when one of Hewlett-Packard's top Unix server resellers acquired one of IBM's top-ten business partners. Logicalis spent $90 million to purchase Solution Technology, an Indianapolis provider of iSeries, xSeries, and pSeries servers and services. Logicalis, which has its U.S. headquarters in Bloomfield Hills, Michigan, pledges to provide the same representation of IBM and HP products following the Solution Technology acquisition, and plans to operate Solution Technology as a subsidiary for the rest of 2004. In 2005, Solution Technology will be integrated with Logicalis, but two divisions will be established for HP and IBM sales and technical support.

This difficulty of melding these opposing forces will be quelled somewhat by the fact that both Logicalis and Solution Technology buy from Arrow Electronics, the $8.7 billion Colorado computer distributor, and Logicalis will be able to maintain relationships with Arrow's IBM-focused division, called Support Net, and its HP-focused SBM division.

"Our acquisition of STI quickly takes us to a whole new level in our IBM sales and service capabilities, while our pending acquisition of an HP solution provider underscores our ongoing commitment and dedication to HP as well," said Mike Cox, Logicalis CEO. Logicalis expects minimal staff reductions as a result of the acquisition, somewhere on the order of eight to 10 people over the next two to three months, and plans to keep Solution Technology's solution partners, which include two OS/400 software developers, DataMirror and Logility, with the organization. Solution Technology's consulting subsidiary, Mindgent, is not part of the acquisition and will remain as an independent company. Logicalis, which has its corporate headquarters in England, despite the fact that $300 million of its total revenue of $400 million came from the North America last year, is a division of Datatec, a $2 billion, publicly traded company from South Africa.

HP Offers Financing Deals to Pump Up Sales

In a move to match a similar deal IBM launched a few weeks ago to bolster sales in the midrange server market, Hewlett-Packard this week announced that it, too, would offer low lease rates and deferred payments until January 2005 as a deal sweetener.

The rate of this low rate financing depends entirely on a company's credit rating, but the deferred payments are available for anyone who can get financing in the first place through HP Financial Services. This specific Jumpstart on Financing an Adaptive Enterprise deal is being offered in North America and allows customers who negotiate a fair market value, $1 acquisition, or 10 percent end of term lease can get deferred payments on that lease between now and January 2005, thereby shifting acquisitions that HP gets to book in the calendar Q3 and Q4 of 2004 into to IT budgets in fiscal 2005 for its customers. Lease terms of 24, 36, 48, and 60 months are available under this offering, and it runs until October 31, 2004, which is the end of HP's fiscal year. Companies have to finance at least $25,000 in PCs, servers, storage, network gear, and systems management software to take part in the deal, and federal, state, and local governments have to spend at least $50,000. This promotion is only available in the United States and Canada.

IBM Announces Venetica Acquisition to Boost DB2 Information Integrator

IBM plans to acquire data integration software provider Venetica, it announced last week. The Charlotte, North Carolina, company develops a product called VeniceBridge, which allows content management and workflow systems to access documents, images, reports, and other unstructured data spread across any number of different data repositories. The problem of multiple data repositories might be bigger than you thought. Venetica cites a Forrester Research report that says 75 percent of companies use data repositories from two or more vendors, and that 25 percent of companies use more than 15 different repositories. Venetica says that IBM will integrate VeniceBridge with its DB2 Information Integrator product, which runs on AIX, HP-UX, Solaris, Linux, and Windows servers and can access data stores on iSeries. The acquisition is expected to close in the fourth quarter. Financial details were not disclosed.

AT&T Study Shows Businesses Still Vulnerable

Businesses in cities that have the highest risks for terrorist attacks, blackouts, and other disasters are least prepared to cope with such emergencies, according to a new study commissioned by telecommunications vendor AT&T and the Partnership for Public Warning, a nonprofit organization established in 2002 to promote the idea that there needs to be an organized means of communicating information to businesses and citizens in the event of disasters.

The two organizations surveyed 1,000 executives in 10 major metro areas--New York, Los Angeles, Chicago, Philadelphia, Washington, D.C., San Francisco, Miami, Detroit, Minneapolis, and Dallas--to assess what lessons have been learned from Sept. 11 and the blackout last summer, which affected most of the states in the Northeast as well as some in the Midwest. According to the study, New York and Washington are the least prepared for a grand-scaled emergency; only 25 percent of businesses polled in these metro areas have a disaster recovery plan. Perhaps because of the annual slamming by hurricanes, the Miami metro area does slightly better; only 15 percent do not have a plan.

While the report, "Disaster Planning in the Private Sector," was critical of the fact that the number was not 100 percent of businesses, 75 percent of businesses that do have a disaster recovery plan (or 56 percent of the total number of New York metro companies surveyed) said that they have not only developed a plan, but tested it as well. On a national level, the study finds that 25 percent of the companies polled have not updated their plans in the past year, and 40 percent have not tested the plans they have. About 20 percent of the companies surveyed said that their businesses had been hit by an outage that caused them to lose money.

Companies are doing something, however. Some 60 percent of the companies polled said that they have redundant servers or a backup site, and 25 percent have added backup power sources for their systems, and 15 percent have upgraded their telecommunications systems to make them more resilient. Of the companies that do have plans, 35 percent outsource their plan coverage from a specialist, and in the financial and government centers, where systems are critical, nearly half of the companies outsource plan coverage to service providers.