There was a time when Hewlett Packard was no more than one of a small flotilla of minicomputer manufacturers - Digital, Prime, Data General, Perkin Elmer and others - slugging it out for a share of the mid-range market.
Today HP is the second most powerful company in the industry behind IBM, and it has eclipsed its rivals of yesteryear. During the mid to late 1980s it was Digital that filled the number two role in the manufacturing hierarchy. HP, although not struggling, was losing market share to its rival.
In an effort to counter the attacks on its installed base and win new customers, HP came up with a new hardware architecture, adopted Unix more wholeheartedly and earlier than many of its rivals and began to strengthen its reseller channel and partners.
HP's precision architecture reduced instruction set computer (PA Risc) chips provided the underlying basis for the hardware platform, while Unix, increasingly in demand in the commercial as well as the scientific and engineering environment, proved a powerful operating system.
The company had another advantage which many of its competitors lacked - the laser printer. The huge sales of these printers provided HP with a financial cushion, enabling it to develop and extend its PA Risc technology without have to mount a massive sales campaign to ensure a reasonable cashflow. In 1994 the company had a massive 43 per cent of the US market share for printers.
Robin Bloor, chairman of consultancy firm Bloor Research, believes the initial introduction of the PA Risc Unix machines had both an advantageous and disadvantageous effect on HP. On the one hand, it provided the company with more powerful machines with which to attack a wider section of the market, but on the other, price/ performance suffered as a result. 'The very powerful Unix boxes took them up a peg in the market but down a peg in terms of performance,' he says.
Although, like all manufacturing companies, HP has IBM firmly in its sights, it probably does not have the firepower to dent its giant rival.
'To really spoil IBM's party it would have to be up there with Hitachi and Fujitsu and I do not think it can do that,' says Bloor.
HP is also faced with the big fleas with little fleas on their backs to bite them scenario. Just as HP eyes the IBM market hungrily so other companies are seeking to be predatory on HP. Compaq, which is increasing its efforts to position itself as a computer company rather than a PC company, has a range of powerful servers capable of challenging some of HP's low and mid-range systems.
Compaq has announced that it will enter the workstation market proper, and set up a workstation division by the end of the year. Although this move is likely to be more damaging to Sun Microsystems than HP it is bound to put some pressure on the latter.
Sun, already strong on the workstation front, is making strenuous efforts to extend further into the server market. Both of these firms would like to knock HP off the number two rung on the ladder. 'If I were HP I would be looking over my shoulder at Compaq which ships a lot more iron and adds very little value. I would also be keeping an eye on Sun. Its image may be fuzzy but the technology is very good,' says Bloor. He believes it is possible that Compaq will acquire a company like Sequent, which would put it head-to-head with HP.
Compaq already competes with HP, according to Hugh Jenkins, the company's systems product manager, both in the server market and in the lower-end workstation and PC business. While admitting that HP is strong in the server market, Jenkins believes Compaq has a distinct advantage over its rival - the relative cost of the systems. He acknowledges that HP has a loyal installed base, but thinks Compaq has an advantage in price performance terms that presents a challenge to the company. 'When you are offering a solution that is a third of the price, you are testing loyalty to the limit,' hesays.
Jenkins is also convinced that the volume market is distancing itself from the type of products offered by HP. 'The volume market is moving away from where HP would like to see it go. What it will go for is servers based around Windows NT,' he says.
It is not just Compaq that HP has reason to fear. The company has to contend with the fact that IBM also has a range of machines in the RS/6000 that competes with its own boxes. Digital's Alpha processor is also a contender, although it lacks a firm application software base at present.
Andrew Cloney, technology marketing director for Bytech, one of the two RS/6000 distributors, believes HP presents no threat to the RS/6000 mid-range to high-end server market. According to the analyst firm IDC, the RS/6000 is the leading choice as a mid-range server. Cloney says HP and IBM strategies and technologies differ significantly. 'They are quite different value propositions. The RS/6000 has many thousands of part numbers to chose from and you can configure the system any way you want it. With HP you can have a red one, a green one or a blue one.'
The biggest money earner in the RS/6000 class is the multiprocessing SP class of machine. 'A year ago we were selling server systems at around u10,000 to u15,000, today it is u50,000,' says Cloney.
Last month HP beefed up its own range of machines, including new models of the HP 9000, based on 64-bit PA Risc architecture. The move is designed to strengthen the company's hand in the mid-range server, Internet, intranet and symmetrical multiprocessing markets.
At the top of the range is a new model of the T Class HP 9000, available next year, designed to compete with the mainframe systems. The lower-end D Class systems, with an entry-level price of u18,000, are aimed at the server market and will compete with offerings from Compaq, Sun and IBM, among others.
Analysts, and even rival manufacturers, agree that HP's technology is strong and its relationship with its channel partners is good. But some have reservations about the future. 'HP is not strategic enough in its thinking but its technology is excellent,' says Bloor.
He ascribes the excellence of the technology to the fact that the company has its roots in electronic engineering rather than computing. When it was founded by Bill Hewlett and Dave Packard in 1938, HP was an instrumentation, rather than a computing, company. The culture of engineering persists to this day.
While the relationship between manufacturer and channel has remained fairly amicable, there have been some signs of disagreement. Last year HP announced it was to merge its workstation division with its PC and printer division. The move would allow the PC and printer dealers to sell workstation products. But there were rumours in the channel that the conditions laid down by the workstation division were so tough, many PC dealers failed to meet them.
This may have been poor judgement on the part of HP, or it may have been a deliberate attempt to weed out the pure box shifters and those resellers that were not deemed technically well-equipped enough to handle workstations.
Being the number two player in any industry is prestigious, but also carries great dangers for any company. On the one hand, the market leader - in this case IBM - is determined to protect its installed base from its predatory rival. On the other hand, the number two spot is eyed avariciously by those further down the league table.
When Digital was in the number two position to IBM it made several successful forays into IBM's installed base via its All-In-1 integrated office suite and accompanying Vax hardware. IBM recognised the threat and introduced the 9370 mainframe dubbed the 'Vax killer'. The fact that the machine failed to fulfil the assassin's role is due mainly to IBM's poor marketing of the machine and unnecessarily complicated software. The 9370 ran no less than six different operating systems, which caused considerable confusion among prospective customers, and was over priced.
To see off HP, IBM has once again introduced a new machine - the Multiprise 2000; a low-cost mainframe with the option to run Unix via open systems adaptors. This time, according to Nick Drabble, IBM S/390 marketing manager, the machine will be more competitively priced and the software will be far less complex. Although IBM has yet to reveal details of either hardware or software licence charges, there are indications that the machine will be priced at about 40 per cent below the entry-level price of the current mainframe family.
IBM has also not said if it will sell the new machine through the channel, but the AS/400 and the RS/6000 are both sold by resellers. Nor is IBM saying officially that it is targeting the HP user base, although analysts believe it is a machine designed to win medium-sized business customers to the mainframe.
John Saw, HP technology marketing manager, says he is not worried by the threat of a new IBM machine competing head-to-head with his firm's own products. On the contrary, he sees the launch of the Multiprise 2000 as an attempt by IBM to shore up its own installed base.
The other disadvantage of being in second place is that the firm becomes the target of those that wish to usurp its position. The likes of Bull, ICL and Digital know they cannot hope to dislodge IBM from its permanent position in the hierarchy, but HP is another matter.
Sun is challenging HP in the workstation space, Compaq and others in the server market, and Digital has a chip technology with Alpha which is as good, if not better, than PA Risc. Compaq and the other PC firms playing in the server market also have a huge price advantage over HP.
But HP has one enormous advantage over many of its smaller competitors - its reputation as a financially sound company.
No single factor, technology, price, or reputation, is a guarantee of continued success; they all play a part. But there is another key factor - channel strategy. Bloor believes one of the reasons for HP's success is that it has a good relationship with the channel. 'All the big Vars went to HP after Digital went belly up. Its channel operations are excellent and its account management is really quite effective,' he says.
Bloor believes HP itself will firstly attack the Digital market. 'HP will go for Digital initially and then for Sun and Compaq.' But he says that while the firm may be successful in taking some of Digital's installed base away, HP will have a far greater problem undermining Compaq and Sun.
There is no doubt HP has good technology and a sound reputation both in the channel and among customers. It is also financially strong enough, at least temporarily, to take a hit, should either IBM at the one end or Compaq and Sun at the other, start eating into its market. The massive sales of printers and storage devices ensure that these cash cows will continue to offer a flow of money.
But being the number two in the market makes it a target for all players just as Digital was in the past. HP will need to battle hard to hold on to its hat.
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