A look at what will happen next in the world economies
Thursday, October 30, 2014
H-P Move Highlights Disruption in Tech
Watch the changes accelerate for the incumbents as we have pointed out over the last two years. Aivars Lode
By Don Clark
For several years, early pillars of Silicon Valley have felt the rumblings of change. ButHewlett-PackardCo. ’s stunning decision to break itself up underscores how strong the shaking has become.
Iconic tech giants such as H-P, Intel Corp. , Cisco Systems Inc. and Oracle Corp. built huge franchises as computers spread to virtually every home and company. But growth has slowed for those technology pioneers, largely because they haven’t been able to reap similar rewards from the shift to mobile devices and cloud computing, where computing power, storage and software are delivered via the Internet.
These offerings make it easier for mobile employees to get work done remotely and reduce demand for traditional corporate computing gear from the likes of H-P, International Business Machines Corp. and Dell Inc.
The disrupters include Marc Benioff , chief executive of Salesforce.com Inc., which offers business software via the Web. Salesforce is growing rapidly at the expense of rivals that sell software that customers install and run themselves.
When Mr. Benioff travels these days, he takes only his new Apple Inc. iPhone, no longer needing a laptop computer.
“The old-line tech companies ”were not architected for that world,“ Mr. Benioff said. ”They were architected for the last world."
At the same time, many of the companies that became household names in the 1980s and 1990s have experienced major shifts in leadership, or are soon likely to.
Larry Ellison stepped down last month after 37 years as CEO of Oracle, though he will remain chairman and chief technology officer. Microsoft Corp. this year appointed Satya Nadella , the first CEO who didn’t participate in the software company’s early years. Intel has been operating since May 2013 under Brian Krzanich, following the abrupt resignation of Paul Otellini as chief executive.
In August, Cisco announced plans to lay off 6,000 workers —the same month CEO John Chambers turned 65; the company hasn’t named a successor or specified when Mr. Chambers might give up the post.
“We are moving from the past generation of leadership to a new generation of leadership,” said Joseph M. Pastore Jr., professor emeritus at Pace University’s Lubin School of Business in New York. “Until that new generation of leadership really takes hold, it’s going to be a very ill-defined, undefined moment in the industry.”
H-P’s restructuring is being led by Meg Whitman, the former eBay Inc. CEO who became CEO in 2011 following the short tenure of Leo Apotheker. She had previously rejected his proposal to spin off the PC business.
But much has changed since then, she argued Monday, supporting the notion of splitting off one company that makes PCs and printers from another selling enterprise technology. For one thing, she said, the prior plan only involved PCs and required creating a new brand; under the new plan, the entity known as HP Inc. will use the company’s current logo to sell those devices and printers, too.
Stiff competition in the tech sector, she added, has also made it more important for companies to focus on a few areas where they can excel while streamlining their management structures for rapid decision-making.
“A lot of the big-cap tech companies are facing a marketplace that is changing at a very rapid speed,” Ms. Whitman said.
H-P isn’t the only company taking radical action. EBay last week said it would spin off PayPal to shareholders by the end of next year, a step initially proposed by activist investor Carl Icahn that it had repeatedly rejected. Michael Dell took his eponymous computer maker private last year after growing frustrated with Wall Street’s attitude toward the company.
Geoff Yang, a partner at venture-capital firm Redpoint Ventures, said investor pressures are likely to become a bigger factor in Silicon Valley—particularly among tech firms whose stock has languished. “My guess is that type of thinking is beginning to become much more front and center in boardrooms of tech companies,” he said.
The old-school tech giants, with varying degrees of success, are striving to keep up with the move to mobile devices and the cloud. Microsoft, for example, recently absorbed Nokia’s mobile-phone business and is making more of its software available for Apple devices as part of Mr. Nadella’s “mobile first, cloud first” strategy. Intel is offering special subsidies to get its chips into 40 million tablet computers this year, while continuing to benefit from sales of chips for servers used by cloud services.
The chip maker, and networking giant Cisco, have also been particularly vocal about an even newer opportunity dubbed the Internet of Things—a phrase to describe the introduction of computing and communications capability to everyday devices like appliances and cars.
But such companies still face the perception that their influence has waned in shaping the future of technology, at least compared with Web natives such as Google Inc. and Facebook Inc. Google, for example, currently carries a market value of about $390 billion, compared to about $69 billion for H-P.
So longtime Silicon Valley watchers expect more spinoffs and acquisitions to try to help prop up stock prices and kick growth into a higher gear. They also expect more management changes.
“I think you’re going to see all the last-generation CEOs get swept out, even the ones that are hanging on with their fingernails,” Mr. Benioff said.