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HP Unveils New Business Strategy: Cloud Computing and Business Analytics

Posted Mar 18 2011 12:00am

If I were an investor in HP, I would be discouraged to learn that the new CEO has only now discovered that software has a higher profit margin than software and also that there's money to be made in the cloud. Here's a report of his remarks about these topics (see: Hewlett-Packard Chief Unveils Strategy for Expansion )

Léo Apotheker, chief of Hewlett-Packard, said Monday that the company would expand its software business and venture into cloud computing. He finally unveiled his strategy to investors on Monday, saying that H.P. would build out its tiny software business and expand into the cloud — a term used to describe products and services delivered online. Mr. Apotheker’s plan is not so much to reinvent H.P., but to help it evolve. Mr. Apotheker said he planned to use the company’s relationships with corporations that already bought its hardware and services to also sell them software and host their data so they could gain access to it from anywhere....The strategy outlined by Mr. Apotheker is intended to lift H.P.’s profit margins. Although personal computers are a big source of revenue for the company, they are a low-margin business, about 6.4 percent in the latest quarter. Personal computers and laptops accounted for 32 percent of H.P.’s revenue in 2010. Software, which has much higher margins of 17.6 percent, accounted for only 3 percent of H.P.’s business....Mr. Apotheker said the company’s software division would focus on security software and business analytics — the crunching of big sets of data — areas where its rivals already excel. But H.P. is hardly in the forefront in terms of business analytics or the cloud, which has been an industry buzzword for several years.

For me, the most interesting part of this article was that it "put some numbers" to the well known fact that software is more profitable than hardware -- 17.6% margin versus 6.4%. It's beyond the scope of this note to discuss why this is true but one aspect is surely, at least for HP, that PCs and laptops constitute a highly competitive IT sector. If you latch onto the right software product. the competition may not pose much of a threat. A good example is the EMR market where Epic has a near monopoly at the high end and can almost name its own price without much push-back from hospital customers (see: Why Does Epic Keep Hammering Cerner? Mr. HIStalk's Opinion ; The Secret to Epic's Success in the Hospital EMR Market ).

Regarding the future of cloud computing, however, I do have a small confession to make. I have been enthusiastic about this topic for more than three years (see: Finally, A Clear Definition for Cloud Computing ) and the IEEE recently declared it to be one of the top eleven innovations for the past ten years (see: Top Eleven Technology Innovations for the Past Ten Years ). I had previously said that healthcare will be the last major industry to adopt cloud storage (see: Xerox Follows Lead of Others, Purchases Computer Services Company ). Here is a quote from that note:

Among major industries, however, healthcare will certainly be the very last to make...a move [to cloud computing]. The stated reasons for this will be security, confidentiality, and HIPAA considerations. The real reason is that healthcare IT personnel are deeply conservative and never take the national lead in any IT ventures. They are also reluctant to put their own jobs in jeopardy.

In view of this recent announcement by HP, I will need to eat my words. Given that a group of five major  hospital and RSNA has already launched a program to share radiology images in the cloud (see: Radiology Group Gears Up for Image Sharing Project at Five Hospitals ), it turns out that healthcare has beaten HP to the punch.

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