Posts Tagged ‘ibm’

HP has lashed out. When it paid $11billion for a UK software company that produced a search engine that no one really seemed to understand, some said they didn’t understand what HP was up to.

Back then the PC company was under the leadership of Leo Apotheker. A former boss at SAP, Mr Apotheker was a software man. His big idea for HP was to move it into software. Hence the purchase of British software company Autonomy.

If you want to know what Autonomy does, the best description may be search engine with knobs on. Is its product any good? Well HP thought so, so it must have been.

Except that a few months later Autonomy, under the HP banner, looked like a pale shadow of what it once was, and the company’s management team, including founder Mike Lynch, had been given their marching orders

Then HP decided it didn’t want to be in software; it was a PC company. Err no it wasn’t a PC company, it was a printer company. Err no it wanted to be a tablet company. Err no it was a consultancy like IBM. Errrr.

So Leo went, and in came Meg Whitman, who shined a light of certainty on the company. Now HP is absolutely certain it doesn’t know what it is.

But one thing it does seem to be certain about is that buying Autonomy was a mistake. Now it is alleging that the British company cooked the books, put certain costs down as marketing costs when they were unit costs, and booked sales to distributers as sales to end users. Mike Lynch denies it of course. He may be right, or HP may be right.

But what is for sure is that HP panicked, and still seems to be panicking.

Okay it still sells a lot of PCs, but its margin on each sale is tiny – around $22, according to IDC. Contrast that with the profits enjoyed by Apple, which is making money out of the fact that its brand name justifies a premium. Compare that with the profits enjoyed by Google, which rakes in the dollars from adverting when Androids are sold. Or contrast it with Amazon, which counts the dollars as it sells books and other goods from its stores on the back of the Amazon Fire.

The truth is that the PC market may not be dead like a dodo, but it is like the Siberian tiger – on the endangered list.

Chastened IBM saw the signs and got out, became a consultancy, and now Big Blue is back, and for a while this year enjoyed a higher market cap than Microsoft.

But for PC companies like HP and Dell, change is required but what change?

This is classic innovators’ dilemma, or what Clayton M Christensen called the “technology mudslide hypothesis.” In his model, established companies in a position of market dominance reinforce their position of strength through their specialisation, but when a new so-called disruptive technology emerges, they miss it. They get relegated to backwaters or go out of business.

Christensen himself took the disc drive industry as an example, and looked at every major change – for example from 14 inch disk drives used for mainframes to 8 inch disks for mini computers, 5.25 inches with the emergence of PCs and then 3.5 inch disks as laptops were developed. He showed that with the emergence of a new disc drive standard, there was a change in market leadership; previously dominant players started doing dodo impersonations.

What is especially interesting about the Christensen study is that the companies themselves were often aware of the danger, researched the new burgeoning technology, but their existing client base showed no interest, and urged them to stick to what they already knew.

Kodak fell victim to innovators’ dilemma. It even flirted with new technology before the rest of the field; it was, after all, a pioneer in digital photography. It still failed to change, however.

HP saw the changes coming too, which is why it bought PALM.  It didn’t know what do next, however, and actually cancelled its PALM based products about the same time as the Autonomy purchase.

Err, that was not a good move. Still, when all else fails, it can always blame the accountants.

©2012 Investment and Business News.

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Windows zzzz. Sorry, must have nodded off there.

Let’s try again. Windows (yes it is possible to say that word without falling asleep) looks a tad bit like yesterday’s news. Now tablets are a different matter; they can cure the headache of many an electronics company and its shareholders.

So Microsoft is now a tablet company. And indeed it’s a hardware company too. Its Windows RT operating system may well turn out to be rather good.

The snag relates to all that legacy. Windows may be a tad dull, but most of us would be just a bit stuck without Word and Excel.

So Windows 8 has backwards compatibility with all that old Microsoft stuff. Presumably, this means that the price you pay for Windows 8 and its backwards compatibility is a slower PC.

But RT, now that’s different. It’s a new operating system and is not being hamstrung by all that baggage.

The new Surface is Microsoft’s attempt to muscle in on the tablet market. It is too early to tell whether the product is any good, or whether it will fly or dive, but credit where it is due, it’s a bold move.

Microsoft’s partners are a little worried. Microsoft is all about producing operating software, and letting its partners worry about the hardware. Sure, the software company moved into games hardware, but that is different. In the world of PCs, Microsoft always has been software, while the likes of Dell and HP focus on hardware.

Now Microsoft has moved onto their turf, so that’s a risk. Of course Microsoft retorts that the Surface is a kind of shop window; it is just trying to trail-blaze a way forward for its partners.

Microsoft’s new operating system is new. One could even say it’s an attempt to start all over again – new hardware, new software. The old PC is not exactly going the way of the Dodo – not yet – but it is tempting to say it is going the way of the Siberian tiger.

The company’s CEO Steve Ballmer admits the new products are vital; that he is effectively risking the company on them.

Then again, Microsoft has been here before. Before there was Windows, there was DOS and that really was dull.

But when DOS appeared to be coming to an end, what did Microsoft do?

Conventional wisdom has it that it ditched DOS and hyped up Windows.

In reality the company experimented. It considered beefing up DOS; it considered working on a new joint venture with IBM or Apple in the Unix market, and even a company sale. Windows was just one of several ideas. The company was lambasted in the media for being too inconsistent, for not having a clear strategy.

Windows evolved in the true Darwinian sense. It was one of many experiments, but it happened to be the one that worked.

Private equity firms don’t like that kind of strategy. They like to see plans stretching into the future and companies that stick to them rigorously.

Luckily for Microsoft, Bill Gates didn’t see things that way and the company flourished.

The problem with these ‘bet the company’ moves is regression to the mean. In the long run companies don’t always perform better than rivals.

Microsoft seems to have forgotten its own lesson.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here