HP aims at Dell with PCs, servers

With Intel-based products--desktops, laptops and lower-end servers--Hewlett-Packard and Compaq Computer have long faced the steady loss of market share to Dell, which has traditionally been lauded for its efficient manufacturing and delivery processes.

HP isn't afraid to learn from Dell, though. "You can look at Dell's playbook and see what you need to do to reduce your costs. We're not too proud to do that," said Mary McDowell, senior vice president and general manager of HP's Industry Standard Server unit. "The engine is getting more efficient."

Specifically, HP plans to reduce inventory, move it to customers faster, boost the amount of products built by outside contractors and increase the number of products sold directly to customers instead of through sales partners.

And the new HP hopes it also will be able to stave off the Dell threat in the PC market, in part by keeping multiple product lines.

"We are not going to let Michael Dell have this one easily," said Mike Larson, senior vice president and general manager for the Personal Systems Group in the Americas, in a conference call Friday. "We're going to be very aggressive at going after both market share and profitability."

Mixing it up in Intel servers
McDowell held the same post at Compaq that she now holds at HP, and the market-leading Compaq ProLiant line largely will prevail over its HP NetServer brethren.

"It's predominantly a Compaq team," McDowell said. HP's Netserver line had lost share to Dell, in part because "they had been impacted by a series of field reorganizations," she said.

HP is being "sensible" with its server choices, recognizing that some things are going to have to go, said Illuminata analyst Jonathan Eunice. "They seem to be paying attention to the adage that if you want to make an omelet, you've got to break a few eggs," he said

Compaq's ProLiant servers will dominate HP offerings, with all but two HP Netservers being eliminated by Sept. 1. However, HP will keep spare parts available for five years and add-ons through 2003.

HP's thin "blade" servers will be sold only to telecommunications customers, with Compaq's trimmer designs prevailing for most customers.

HP designs will have more presence in the higher end of the Intel server product line, where Compaq has had some trouble.

Compaq had been working for at least two years on a chipset called F8 that would be the core of an eight-processor Intel server that Compaq had hoped would be out by now.

HP is "looking at the end of the year," McDowell said of the revised F8 plan.

But F8 will still arrive, unlike some other high-end Compaq designs.

Compaq had been working on two chipsets to power systems for Intel's high-end Itanium chip line, one to enable eight-processor servers and one to enable 32-processor servers.

"We're going to stop that work," McDowell said. The new HP will continue with the 8-way and 32-way designs that the pre-merger HP was developing, she said. The company's plans also include 64-processor Intel servers.

In the pre-merger Compaq, McDowell presumed that HP's involvement in co-developing Itanium with Intel would give it a leg up over Compaq. "I'd be pretty surprised if they didn't have more investment and weren't ahead of us," she said she thought at the time. "And in fact they were."

With the higher-end Intel servers, HP faces competition from IBM, which is plowing research funds into servers. Dell, by comparison, relies more heavily on the research budgets at Microsoft and Intel.

PC profusion
Executives from HP's Personal Systems Group see personal computing devices everywhere and plan to tackle the market with a wide range of products and an emphasis on portable products.

"We think mobility is going to be key to the future," said Duane Zitzner, executive vice president of HP's Personal Systems Group.

HP's new set of products, which will begin to arrive in as few as 90 days, will include desktops, notebooks, handhelds, wireless networks and other devices, Zitzner said.

The company will sell notebook PCs and iPaq handhelds, but it is also eyeing a range of new products from Microsoft's Mira and Tablet PC to new, more cutting-edge devices. Meanwhile, HP will work to integrate new features such as wireless networking using 802.11b into new products as well, Zitzner said.

HP, which unveiled its product plans May 7, said it will keep PC product lines from both companies. Others, such as its workstation line, will merge. Some have even been put out to pasture. Both Compaq's and HP's digital music appliances for playing audio CDs and MP3 files have been shelved, at least for now, executives said.

In other product categories, HP will simply phase out its desktops and notebooks, save for the HP ePC for corporate customers. In general, it will sell Compaq-branded desktops and notebooks, with the Compaq Evo being the workstation brand for business customers.

However, it will maintain both HP Pavilion and Compaq Presario brands for its consumer desktops and notebooks, a move that has met with some criticism from individuals who think the company could save more money by going with a single brand.

"We looked at this. Both brands have different equity in different parts of the world," Zitzner said. "We will continue to position (consumer) products as we move ahead, looking at different segments of the market for these."

The company didn't want to throw away one of the brands. Instead, it feels it can be like many other companies, ranging from refrigerator manufacturers to car makers, who have multiple-brand strategies.

"There's Toyota and Lexus. It's very common to have this done in the industry. The key is the right positioning of the product," Zitzner said.

But while Toyota's high-end Lexus is built for a wealthier market, compared with other Toyota models, HP's Pavilion and Presario lines won't necessarily be positioned as posh versus plebian, Zitzner said.

HP could differentiate the brands with services offerings and software. Meanwhile, in some parts of the world one brand may take the lead over another.

Where it will save costs is in engineering, the company said. In the future, research and development costs for developing parts will be shared, and the same parts will be used more widely. Using the same suppliers will also help cut down on cost.

Over the next 90 to 180 days the company will begin the transition to new models. It plans to make this move as quickly as possible between now and the end of the year.

News.com's John Spooner contributed to this report.