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Commentary: Hewlett Packard Made A Tough Decision, But The Right One

News: Analysis & Commentary

Commentary: Hewlett-Packard Made a Tough Decision, but the Right One

When Lewis E. Platt stepped in as chief of Hewlett-Packard Co. in 1992, he expounded a smart-sounding, if techie, vision called HP=MC2. The idea: to combine measurement, computing, and communications technologies into an unbeatable set of blockbuster products.

So much for the vision thing. On Mar. 2, after more than two years of lackluster results, Platt's plans came to a sudden end: HP said it would spin off its original measurement products--the kind Bill Hewlett and Dave Packard put together in that famed Palo Alto garage--to focus on computers and related items.LAGGING BEHIND. It's a move that's way overdue. Hewlett-Packard deserves credit for creating the culture that made Silicon Valley the envy of the world. And Platt, who will step down in 2000, leaves a solid legacy--a company that he built into a computer powerhouse and that tripled in sales, to $47 billion, in the past six years.

But during that time, the high-tech world has changed, and Hewlett-Packard hasn't kept up. HP's founding business has become an albatross that left customers and investors confused about what HP stood for--and HP's executives too distracted to grab new opportunities.

Rivals wasted no time exploiting HP's weakness. Sun Microsystems Inc. extended its pioneering role in the Internet to steal HP's position in corporate computing. Microsoft Corp. turned itself around to embrace the Net. Even IBM latched on to the E-commerce juggernaut. But, says Merrill Lynch & Co. analyst Steven Milunovich: "HP has really booted it when it comes to the Internet."

The shocking thing is that HP also booted what had been its calling card: its technology leadership. Amazingly, HP ceded that leadership willingly. Several years ago, Platt made a key decision. He cut back on development of new microprocessor chips and operating software and agreed to use Intel's chips, which use some HP technology, and Microsoft's Windows NT on its computers. But Merced and the version of Windows NT that would help HP compete effectively against Sun are still not available. One result: HP's computer sales growth fell to 6% in 1998. Another grim consequence: HP depends increasingly on sales of PCs and printers. It's competing well there, but these are areas where prices and profits are falling. And neither business brings HP into the real growth markets--Internet servers and services.

That's why Hewlett-Packard needs to go much further as it ponders its future. It needs to give its operations more autonomy to compete with focused rivals like Dell and Sun. And it needs to look seriously outside the company for a new chief executive--perhaps even bringing back Silicon Graphics Inc. CEO Richard E. Belluzzo, who left HP a year ago. Whoever comes in needs to make every HP employee understand that in the Internet age, no company--even an icon--is safe anymore.By Robert D. Hof

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