Analysis: Cisco criticises HP strategy

An eight page document has been circulated internally at Cisco, in which the firm criticises rival HP’s decision to scrap its tablet and smartphone business, and the fact it will probably spin-off or sell its PC division.

The PDF entitled ‘HP’s PC Business Divestiture—Cisco Internal Perspective’ explains in remarkable detail exactly how it sees HP and its partner’s bottom line suffering as a result of the move, which essentially looks like a strategy to turn the hulking IT organisation into a software and services company (an assertion bolstered by the purchase if Autonomy).

The memo claims ‘divesting’ the PC business will create the following problems for HP:

– Negative impact on remaining enterprise hardware business due to reduced purchasing power

– Reduced economies of scale and leverage with partners and small and medium enterprises

– A significant uphill battle in enterprise software

– Undefined strategic approach

– Unclear future for networking

The document was apparently circulated to sales staff for general information, but ended up getting leaked to the press. Apparently it was penned by Rob Lloyd, Cisco exec veep for worldwide operations

If there’s an overall theme, it’s that of chest-beating on Cisco’s part. HP and Cisco would be in closer competition the more HP moves into networking and general corporate services, and away from computer hardware and the consumer space.

Some other choice extracts include:

“HP is stuck between a rock and a hard place. Exiting the PC business would have a major impact on HP’s ability to generate economies of scale—impacting other products such as low-end servers—and would undermine its ability to gain competitive advantage by positioning itself as an end-to-end IT supplier. It also raises questions about HP’s strategic approach to other hardware businesses such as printers and campus networking. However, keeping the PC business is even more challenging as demand for PCs declines, margins erode and businesses adopt other devices like tablet computers, for which HP has not found an answer.”

And:

“HP’s August PC announcement marks a dramatic reversal of the company’s integrated strategy established under Mark Hurd and creates uncertainty around its future direction. The spin-out of the PC business will have a major impact on HP’s ability to generate cost efficiencies through scale and its ability to leverage its product portfolio with customers and channel partners. At the same time HP faces significant challenges in developing a profitable enterprise software business. This, combined with the spinoff of the PC business
and associated corporate restructuring, is likely to divert management from day-to-day execution in the business and create an uncertain environment for HP’s employees, customers and channel partners.”