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H-P touts product, focus on customer

Published Sep. 27, 2005

The computermaker steps up the pressure on rival Sun Microsystems with its new Superdome server computer.

After months of buildup, Hewlett-Packard Co. on Tuesday rolled out the powerful computer it is counting on to lift sales to e-commerce operations, multinational companies and Internet service providers that need systems capable of handling vast amounts of data around the clock.

Carleton S. Fiorina, Hewlett-Packard's president and chief executive, hailed the new server computer, called Superdome, as a sign that the company has been "reinvented" as a more customer-oriented vendor.

At an event on Wall Street, the company emphasized not only the new product but a revamping of its sales force to provide extensive prepurchase consulting and a pricing system that allows customers to peg costs to their computing needs instead of the machines' capacity.

Fiorina did not mention the company's current negotiations to acquire the consulting arm of PricewaterhouseCoopers for as much as $18-billion, but analysts said that such a deal would be consistent with the vision involved in designing and marketing the new server.

Superdome appeared to have little impact on investor worries that such a deal would dilute earnings. The company's stock fell $1.44, to $112.56, in trading Tuesday.

Tuesday's announcement completes a two-year effort to revamp its line of servers that run on Unix, an operating system that Hewlett-Packard mistakenly believed was falling out of favor in the mid-1990s. Sun Microsystems seized on that opening to become the leading vendor of such servers, and Hewlett-Packard _ along with rivals such as IBM and Compaq _ has struggled to catch up.

Hewlett-Packard said that 16 of the new servers had been installed at customer sites and that 150 more were on order but that volume production would not begin until next quarter. Basic units will cost about $400,000, while more powerful configurations with better support packages will cost several times as much.

Several early customers on hand for the event said they had been impressed by the speed and ease of installing the refrigerator-sized server, which Hewlett-Packard said had been a major design goal.

"It has been remarkably stable," said Vincent McKoy, a chemistry professor at the California Institute of Technology, who has been using a Superdome to do mathematical analyses of the properties of materials used by the semiconductor industry. Other early users include and General Motors.

But analysts said it was too soon to predict whether Hewlett-Packard could dent Sun's momentum.

"HP will have a six- to nine-month window of high-end performance leadership," said Brian P. Richardson, an analyst at META Group in Stamford, Conn. But the complicated pricing strategies Hewlett-Packard is pursuing might keep some customers from buying quickly, he said. Sun is expected to begin upgrading its servers this fall, with substantial improvements in its high-end system likely next summer, Richardson said.

One indicator of Sun's strong position in the marketplace has been the differing reaction of customers to pending new products, said Donald Young, who follows the server markets for PaineWebber. Hewlett-Packard's sales of high-end servers sagged while customers waited for Superdome. By contrast, Sun's sales of such products have continued to soar even though its new line is expected soon.

Computer sales, including notebooks and personal computers as well as servers, accounted for about $5.17-billion of Hewlett-Packard's $11.82-billion in revenue in its most recent quarter. Its shares fell 11 percent the day after the earnings report, a decline attributed largely to disappointment with server sales.

In introducing the Superdome, Hewlett-Packard claimed that it outperformed Sun's current offerings by 30 percent. But it conceded that it would be several weeks before it had figures from industry-standard testing to back up its claims.