HP Shoots for the Moon with Low-Power Servers

Hewlett-Packard shares shot up 13 percent this afternoon after reporting better than expected -- but still poor – earnings yesterday evening. Investors seemed to ignore the company's declining PC business perhaps paying attention to the company's plans to deliver its next-generation datacenter offering called Project Moonshot next quarter.

Project Moonshot is based on a revamped server architecture announced last year that replaces traditional Intel Xeon and AMD Opteron processors with low-power chips from ARM and Intel, the latter using Atom CPUs, both of which are found in tablets and smartphones. These servers are targeted at enterprises running large datacenters, cloud service providers and others running large Web sites.

CEO Meg Whitman said while servers based on Project Moonshot will start to ship next quarter, HP won't be in full production until 2014. Whitman believes Project Moonshot will have a major impact on its enterprise and datacenter business.

"We expect this to truly revolutionize the economics of the datacenter with an entirely new category of server that consumes up to 89 percent less energy, 94 percent less space and 63 percent less costs [than] traditional x86 server environments," she said on yesterday's call. "This is exactly the technological inflection that can fuel the exponential growth of hyperscale computing."

Whitman said HP has received its first order from a company operating in Japan, which is still reeling from the earthquake and resulting Tsunami two years ago that knocked out much if its power grid. As a result, space, energy and cost of compute are at a premium she indicated.

In a CNBC interview this morning, Whitman talked up HP's enterprise business noting it makes up 43 percent of the company's profits. "I don't think many people understand that," she said.

While she may see the enterprise as HP's salvation, HP's deteriorating PC sales -- down 8 percent with margins of just 2.7 percent -- continue to plague the company. Consumer sales declined 13 percent, commercial business was down 4 percent while desktops and notebooks dropped 10 and 14 percent respectively, HP reported.

Though all PC vendors are in similar boats, HP's share of "smart connected devices," which consist of PCs, tablets and smartphones, dropped 8.5 percent in 2012 year-over-year, while Samsung grew 119 percent, Apple 44.3 percent and Lenovo 61.4 percent, IT market researcher IDC reported yesterday. Only Dell saw a greater decline of 12.9 percent. For the most recent quarter, HP was the only of the big-five to see its share decline.

Whitman said HP will continue to emphasize "personal systems," which include PCs, tablets and yet-unannounced smartphones. She also underscored HP's plan to spread its personal systems portfolio beyond Windows, pointing to this month's launch of Chromebooks, based on Google's Chrome OS.

"We like the overall market but there is a transition from more traditional form factors to new form factors," Whitman said. "There's also a transition from one operating system to multi operating systems and we are pursuing a multi operating system strategy. At HP, we've got to reallocate resources from our PC business to our mobility business, from one operating system to multi operating systems, and we have to allocate resources to services, because profit pools are shifting here."

Responding to a question about longstanding rumors and continued calls to breakup HP into separate company, Whitman didn't entirely shut the door on such a move but indicated that's not what she favors. "No one knows more about computing than HP," she said. "It's a core part of the DNA of this company. We like being able to go from the device to the datacenter but it's a tough transition to manage."

Continuing her refrain that rebuilding HP is a multiyear strategy, Whitman believes the company is on the right track. Do you? Drop me a line at [email protected].

Posted by Jeffrey Schwartz on 02/22/2013 at 1:15 PM