HP Brags about Integrity Sales in Asia/Pacific

Published: April 26, 2006

by Timothy Prickett Morgan

In the server racket, you go where the growth is, you play to your strengths, and if your competition is falling behind in any way, you rub it in. Hewlett-Packard has taken more than its share of in-rubbing since its merger with Compaq five years ago, but with the ProLiant X64 business humming along and its Itanium-based Integrity server line growing, it is now HP's turn to rub it in a little.

Which is why Rich Marcello, senior vice president and general manager of HP's Business Critical Server unit, hosted a call for press and analysts to describe how the Integrity business is picking up in the emerging economies of Brazil, Russia, India, and China--the so-called BRIC countries. According to IDC, the combined spending in these four countries is expected to grow at a compound annual growth rate of 13.9 percent between 2005 and 2009, and will eventually exceed $100 billion in total IT spending. Every vendor is scrambling like crazy to chase that growth, and HP is no exception. "We think we can ride this wave and grow our Integrity business substantially," explained Marcello. "Moving forward, we think a lot of our Integrity revenue growth will come from these countries."

The numbers seem to suggest this is already happening. While the Integrity server business grew at 81 percent in the fiscal 2005 year and grew at 94 percent in the first quarter of fiscal 2006, the growth the Integrity line saw in the BRIC countries was well into the triple digits, according to Marcello. IDC is projecting that over the next three years, the overall Itanium market will grow at 44 percent in Europe, and 51 percent in Asia/Pacific, compared to the 3 percent growth rate of the server market overall.

What seems to be helping HP's Integrity line is that in these emerging countries, companies and governments are picking systems for the first time, and some are thinking about platforms that they expect to last for the next 20 to 30 years. Marcello said that the multiple operating system strategy that HP has taken for the Integrity line is playing well to these customers, as has the application focus on key verticals, such as financial services, manufacturing, and telecommunications.

Perhaps the most interesting insight that Marcello gave in the call was about IT spending on hardware in the BRIC countries as it relates to the rest of the world. In a way, the more mature the IT ecosystem is in a country, the less money it spends on hardware. Marcello said that the worldwide average for hardware spending as a percentage of total IT spending was 38 percent. In China, the IT market is utterly exploding as the Chinese economy has grown at 10 percent a year for many years and many companies are only now able to get computing infrastructure because electricity supply is more reliable. (There are debates about this, and the word I hear is that the Chinese government has actually been trying to curtail computing because of electricity shortages.) In any event, in China, 72 percent of the IT budget is right now going to hardware, according to Marcello. This number, I think, might be skewed by the fact that the Chinese really like open source software and also have a penchant for pirating software. In Brazil, which is a more mature economy and more sophisticated about IT, the country is experiencing a wave of IT consolidations not unlike what hit in the United States and Europe in the late 1980s and early 1990s, and hardware spending has dropped to about 47 percent of aggregate IT spending. Russia and India are more mature than China, but less so than Brazil, with 68 percent and 59 percent of their respective IT pies still going to hardware.