HP president warns of low-margin future for IT industry

17 July 2002 Hewlett-Packard (HP) president Michael Capellas has warned that there will be no return to the high-margin sales of the Internet boom.

Companies such as the systems, software and services giant HP must focus far more closely on computer services, strategic partnerships and ruthless cost-cutting in the continued absence of a strong recovery in the IT sector, said the former Compaq CEO.

Speaking to Infoconomist magazine, Capellas said that HP’s acquisition of Compaq Computer puts it in a much better position to cut costs than other vendors. “Part of what people have refused to accept is the fact the computing industry is maturing to where we are starting to use more blocks and more standard components, standard building blocks.”

For example, HP’s strategy of ditching PA-Risc and Alpha in favour of just one standard microprocessor from Intel across its entire high-end server line will give it a huge cost advantage, claims Capellas.

HP’s strategy is to partner with other technology vendors, instead of trying to be the dominant vendor in most markets. “We will partner with Intel for microprocessor development – while IBM develops Power [its proprietary chipset]. We will partner with Oracle and Microsoft in middleware and databases – while IBM tries to develop WebSphere and DB2,” said Capellas.

He added that there are only five large-scale global computing companies left – IBM, HP, Dell, Sun Microsystems and EMC. Strategically, “each of those companies will have to go through a significant transformation,” he concluded.

Michael Capellas Q&A (July 2002)
Michael Capellas, ex-CEO of Compaq and new president of Hewlett-Packard, talks to Infoconomist about the Compaq/ HP merger, his vision for the new company and the prospects for the IT industry.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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