HP CEO Whitman Pledges Stepped Up Server Battle With Dell

Hewlett-Packard CEO Meg Whitman Wednesday said the computer giant is poised to get more aggressive to stem declines in the industry-standard server market where it is losing share to rival Dell.

"We simply have to execute better," said Whitman in a conference call with Wall Street analysts after HP posted a 12 percent decline in industry-standard server sales for its second fiscal quarter compared with the year-ago period. "And we are on it! We are moving quickly to revamp business models to give our sales teams and channel partners more tools and more agility, especially on pricing."

Whitman said she will not accept "very aggressive competitive pricing" from Dell or others as an "excuse" for poor sales performance at HP. "We need to fight much harder," she said. "For me this all comes down to our will to win, and we are committed to winning."

[Related: HP Shares On Rise After Better-Than-Expected Q2 Earnings ]

With HP walking away from a number of deals as a result of pricing pressure, Whitman pledged that HP will "take another look at the low end of our product line to better match customer needs and price points."

Whitman cautioned that Palo Alto, Calif.-based HP is not likely to see the benefit of the changes until "later in the year," given server deal "cycle times."

The no-nonsense call to action from Whitman comes after Dell CEO Michael Dell boasted in an exclusive interview with CRN earlier this month that Dell is gaining server share from HP at a "staggering clip," even as Dell moves to close a $24.4 billion blockbuster leveraged buyout.

Preliminary server unit data from market researcher IDC shows Dell's North America share at 35.7 percent in the first quarter, up from 31.7 percent, while HP's share during the same period came in at 28.2 percent, down from 33.9 percent.

Whitman, for her part, said Dell is paying a big price with its aggressive server pricing decimating the Dell bottom line. Dell in its first fiscal quarter of 2014, which ended May 3, reported non-GAAP net income of $372 million, down 51 percent from $761 million in the similar quarter one year ago.

"This quarter you saw one of our big competitors, Dell, completely crater their earnings," said Whitman. "That is not sustainable for a company like Hewlett-Packard. Maybe it is what you do when you are going private, but it is not what you do if you are running a big publicly-held company that is trying to create the financial capacity to invest in innovation and to invest in our future. And as I said, we are here to set this company up for the long term, not just get through this year."

NEXT: Whitman Says HP Must Strike Market Share-Profitability Balance In Server Battle

Investors are certainly giving Whitman credit for driving improved earnings performance. HP shares were up in after-hours trading to $2.90, or more than 13 percent, to $24.13 after the $120 billion computer giant, for the quarter ended April 30, posted non-GAAP diluted earnings per share of 87 cents per share, well above the Wall Street consensus of about 81 cent per share.

HP sales for the quarter were $27.6 billion, off slightly from the $28.1 billion Wall Street consensus, and down 10 percent compared with the same period one year ago when HP posted $28.35 billion in sales.

Whitman said HP must strike a fine balance between market share and profitability as it battles Dell in the industry-standard server market. "We did walk away from deals that were really problematic from an operating market perspective," she said. "Now what the team understands is that can't be an excuse. That means we've got to figure out how to compete. We have to make sure we have got the right product designed for the right market segment appropriately featured -- not over-featured -- and we have to make decisions about what deals we must win."

HP is going to be focused on deals that are "sticky" as opposed to deals that are "strictly transactional," where customers are looking for simply the lowest price rather than developing a long-term relationship, said Whitman. "That is the balance that we are putting in place," she said.

One segment where Dell is having success against HP is with cloud service and Internet providers that are building out data centers with aggressively priced, custom-designed industry-standard servers.

HP CFO Cathie Lesjak admitted as much, noting that HP saw "further weakness" in sales to cloud service providers. Lesjak also blamed the overall poor industry-standard server performance on "poor execution coupled with continued macro-pressure and an intensely competitive pricing environment."

"In our mainstream business, we struggled with our entry products and saw pressures in volume [servers] and some areas of the value side of the business," she said.

One HP partner, who did not want to be identified, said the Dell pricing pressure is taking its toll on HP partners that have focused on "transactional" server sales rather than building out a strategic solution-focused business with customers. He said he expects his HP data center business to be up significantly this year.

Another top executive for an HP solution provider, who did not want to be identified, said he sees the Dell server share gains as part of a market share push to help drive the Dell leveraged buyout. "Dell is trying to gain market share to make its business look better than it is," he said. "Long term, that is simply not sustainable."

PUBLISHED MAY 22, 2013