HP Servers: Partly Cloudy

By Baselinemag  |  Posted 2004-09-01 Print this article Print

Hewlett-Packard is the No. 1 vendor of Intel-based servers, but it has lost some momentum to competitors.

Hewlett-Packard is the No. 1 vendor of Intel-based servers today, largely by standing on the shoulders of Compaq, whose ProLiant systems make up the heart of HP's offerings. But there are signs its momentum has slowed: For the quarter ended July 31, sales of HP's Intel servers grew 2% year over year, well off the industry pace. IBM, by comparison, saw Intel server sales kick up 18% in its second quarter of the year.

That said, HP's server customers—which, in many cases, were originally Compaq's—are generally upbeat. Eric Latalladi, director of technical services for brokerage firm J.B. Hanauer & Co., says HP is its sole supplier for servers because his staff has "a very high comfort level" with its products. "The physical build of their machines is the strongest out of all the vendors," he says.

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For the U.S. Department of Agriculture (USDA), HP's ProLiant servers have been "very reliable, and that's amazing because many of them are not in what you'd call computer rooms," says Scott Snover, a project manager at the agency. As part of the USDA's Common Computing Environment project, Snover oversaw the rollout in 2001 of ML370 servers (supplied by Compaq) to 3,000 agency offices across the U.S. and in outlying territories—several without air conditioning. "These servers are not babied by any means," he says.

But HP can be inattentive. Chris Beck, a network administrator for the city government of Fontana, Calif., says "I love HP's hardware" but notes that the company hasn't proactively told him about changes in its server portfolio. For example, HP recently phased out a network adapter the city used in several servers, catching Beck's group by surprise. "It would have been nice to get the heads-up about that so we didn't have to go do the research," he says.

And competitors have sometimes beaten it to the punch. Most of the Public Broadcasting Service's servers are from HP. But a year and half ago, André Mendes, the network's chief technology integration officer, deployed IBM's BladeCenter because "the original HP blade servers were not up to snuff. The processors they offered were not fast enough for what we needed."

Now, however, Mendes is considering replacing PBS' three racks of IBM blade systems with HP's BL20p systems. "We've studied what HP is bringing to the table now," he says, "and we think they're on the right track."

3000 Hanover St.,
Palo Alto, CA, 93404
(650) 857-1501

Ticker: HPQ (NYSE)

Employees: 142,000

Brad Anderson
Senior VP & General Manager, Industry Standard Servers
Oversees the ProLiant server lines. Before joining HP in 1996, he held various management roles at supercomputer maker Cray Research.

James Mouton
VP, Platform Division, Industry Standard Servers

In charge of hardware engineering for ProLiant servers; previously an engineer at Texas Instruments.

ProLiant servers include the ML series (up to four processors each), designed to allow installation of additional components such as memory; the DL series (up to eight processors each) for data-center racks; and high-density BL series blade server systems. Software utilities include Systems Insight Manager, which provides monitoring and configuration management, and SmartStart for managing server deployment.

Reference Checks

Public Broadcasting Service
André Mendes
Chief Technology Integration Officer
Project: Broadcaster based in Alexandria, Va., has about 30 ProLiants that run Microsoft applications, including Exchange e-mail servers and SQL Server databases.

Tulane University, A.B. Freeman School of Business
Tom Gerace
Dir., I.T.
(504) 865-5651
Project: Business school in New Orleans standardized on Compaq's ProLiant servers and desktops in 1996 and now runs 16 servers; last year, it deployed HP's BL20p with 10 server blades.

Scripps Health
Jean Balgrosky
Project: Five-hospital health-care system in San Diego has 170 HP servers in one central data center running IDX Systems' medical records system and other applications.

City of Fontana
Chris Beck
Network Administrator
(909) 350-6791
Project: California city government uses 65 HP servers to runs its e-mail, Web site, PeopleSoft human-resources and financial systems, and other applications.

J.B. Hanauer & Co.
Eric Latalladi
VP, Dir., Technical Services
Project: Financial services firm in Parsippany, N.J., consolidated about 60 servers to about 25 more powerful HP models in October 2003.

U.S. Department of Agriculture
Scott Snover
Project Manager
(970) 295-5541
Project: Agency deployed 3,000 ProLiant servers to field offices in the U.S. and its territories for file storage, printing and e-mail.

Executives listed here are all users of HP's products. Their willingness to talk has been confirmed by Baseline.

HP operating results*

2004FYTD 2003FY 2002FY
Revenue $58.52B $73.06B $56.59B
Gross margin 24.7% 26.6% 26.5%
Operating income/loss $2.94B $2.90B -$1.01B
Net income/loss $2.41B $2.54B -$903M
Net margin 4.1% 3.5% -1.6%
Earnings per share $0.78 $0.83 -$0.36
R&D expenditure $2.65B $3.65B $3.37B

* Fiscal year ends Oct. 31; FYTD reflects first nine months Source: company reports

Other Financials**

Total assets - $74.38B
Stockholders' equity - $38.71B
Cash and equivalents - $13.99B
Long-term debt $4.91B -
Shares outstanding 3.06B -
Market value as of 8/25 - $55.19B

**As of July 31, 2004, except as noted


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