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Hewlett-Packard: Servers, IT Sourcing New Growth Engines

 August 08, 2012 10:34 AM

(By Mani) For Hewlett-Packard Co. (NYSE:HPQ) the Enterprise Servers, Storage and Networking (ESSN) division would be the new driver of the top line as deal activity seems to have been pushed from July quarter into the current October quarter, and more HP Servers are getting deployed at Amazon.com, Inc. (NASDAQ:AMZN), Apple, Inc. (NASDAQ:AAPL) Facebook, Inc. (NASDAQ:FB) and Rackspace.

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The ESSN unit, which accounts for 16 percent of HP's revenue, makes industry standard servers, business critical systems, storage platforms, and networking products, including switches, routers, wireless LAN, and TippingPoint network security products.

HP's enterprise business seems to have picked up in partner channel around the last week of July'2012 and is continuing into August'2012. Customers are slowly moving away from Oracle Sparc based servers and into HP's server offerings.

"Customer engagements were tough in May'2012 and June'2012; however, customer activity vastly improved in the last week of July and continues into August," Global Equities Research analyst Tej Singh said in a client note.

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In addition, more HP servers are being developed at key clients such as Apple, Amazon, Facebook and Rackspace.

Amazon in investing heavily in Amazon EC2 Cloud and in Geo-Replicating sites. Sequentially more HP servers are being deployed in these server farms. Meanwhile, Apple continues to invest in its North Carolina Data Center, which is powering Apple's iCloud.

" The converged view is that about 90% of the Servers (at Apple Data Center) are from HP," Singh added.

Incrementally more HP Servers are being deployed at Facebook, as it has put a lot of resources behind Facebook's Open Compute model. More HP Servers are getting deployed into Rackspace, as HP is supporting Rackspace, which is backed by OpenStack offering.

In addition, changes at General Motors Corp.'s (NYSE:GM) IT sourcing may increase HP's total contract value by about 30 percent as domestic outsourcing and datacenter consolidation are the key drivers.

In 2006, GM granted multiyear, multivendor (5 major vendors) IT Sourcing deal worth about $15 billion, and the key winners of that deal were HP, Capgemini, IBM, Covisint (now Compuware) and Wipro. However, things changed once GM went into bankruptcy and outsourcing became a contentious issue.

Currently, GM is planning to hire IT staff, but is unable to attract talent. Instead of offshoring, GM is focusing on domestic sourcing and consolidating its data centers from 20 to 2. HP could be the prime beneficiary from the domestic outsourcing trend that is emerging at GM.

"Converged view is that HP will likely lead the data center consolidation efforts at GM, which will likely include – New Servers, New Storage, New Networking, New Software, New Management Tools and New Cloud Services," Singh noted.

As a result, HP's total new contact from GM may increase by about 30 percent compared to the contract they received in 2006.

In a related development, HP said Mike Nefkens to lead HP Enterprise Services (ES) on an acting basis. Nefkens would replace John Visentin, who will be leaving the company to pursue other interests. Nefkens was the senior vice president and general manager of HP ES in EMEA.

Nefkens, who has led successful customer IT transformations for some of HP's largest services accounts, will be responsible for driving growth and innovation for HP's applications, business processing and outsourcing services. Nefkens will report to Meg Whitman, president and chief executive officer, HP.



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