HP’s storage shortfall this past quarter has Carly pulling out the stops to save one of HP’s few high-margin non-printer businesses. Firing executives, check. Inspirational speech to resellers, check. Roll out ambitious product roadmap for delivery in 2008, check.
2008!?! Why not just put out a press release titled ” HP execs panic over storage shortfall, have no clue how to fix business in less than four years”? Then, at least, they could start facing up to their real problems.
Issuing long-range roadmaps is always a move of pure desperation, so the HP storage business must be considerably weaker than they have let on. The best way to sell a lot of storage is to sell a lot of servers that support it and make it real easy for customers to buy. But HP’s roots as a device company have always made the systems approach that requires difficult to execute. Even though HP bought a strong storage business with Compaq (which won it when they bought DEC) and the StorageWorks line, the feckless storage mavens in Palo Alto (best idea ever: “Let’s introduce EMC into all our top corporate accounts! It’s cheap, easy and with no engineering its all profit!”) have managed to run it into the ground. Having EMC in all your top accounts doesn’t help, but still.
So here’s a question: why can’t a strong device company build strong storage devices? Probably because the bean counters won’t let them. Everyone is so enthralled by software margins that the thought of lowering them with hardware margins just makes their skin crawl. But if there is one thing that storage has proven, it is that when the stakes are high (and your corporate data is as high as it gets) customers are willing to pay for well-engineered, well-integrated software and hardware storage systems. Wall Street will punish you if you make a big deal about it, because they always believe that hardware is just a commodity, but even 45% margins are better than selling true commodities such as Intel servers with 20% (if you’re lucky) margins, and those gross margin points do show up on the bottom line.
And the sad part is that the industry is on the crux of a new generation of storage devices that a smart company like HP could really win with. I’m talking about IP SANs, 2.5″ disks and switch chips. Not sexy, but as avid readers of the Innovator’s Dilemma know, it is these simple cost-reducing technologies that can upset existing market hierarchies. And HP has the expertise. DEC’s StorageWorks team built the industry’s first Enterprise-class 2.5″ disk 10 years ago. It failed to find a market, since its power consumption was too high for laptops and data centers hadn’t even adopted 3.5″ disks, but the vision was there.
Now the market is at a place where small, high-performance, Enterprise-quality arrays could be offered for much less than existing 3.5″ disk arrays. Package ’em up in brightly colored boxes, stack ’em high and sell ’em cheap with nifty add-on storage software and expansion hardware and you’d have a nice storage analog to the printer business.
Could HP run with that? Maybe, but not with current management team gibbering with fear, waiting for Carly’s bloody ax to fall again.