Looking Back, Fiorina Was Stuck in the 1960s
I was contemplating last week’s ouster of Carly Fiorina as chairman and chief executive of Hewlett-Packard Co., while my HP desktop personal computer booted up and my HP laptop recharged from the wall socket, and the following thought occurred to me: Why is HP still in the PC business?
This is not an idle question. The profit margin on HP’s personal computers is close to zero despite its ranking as No. 2 in sales, after Dell Inc. The main reason is that its PCs are, inside the box, virtually identical to everyone else’s. Consumers today choose a PC by price, the same way they pick a private-label cola. (I certainly did.)
The commoditization of computing has only picked up speed with the spread of broadband Internet connections because much more of what we do with computers is driven by the network, not by the resources inside the desktop box.
That’s largely why the boom in computing power, which
fueled the industry’s growth in the late 1990s, has stagnated. With the exception of hard-core gamers, anyone can get all the computer he or she needs for a few hundred bucks; two of the PCs in my home were hand-built by my kids, and for 99.9% of what we use them for, their performance is indistinguishable from that of the HP on my desk.
Fiorina was intent on building up (or rather, shoring up) HP’s personal computer business because she felt that consumers and businesses would be miserable unless each piece of their information technology network bore the same nameplate. As modern strategies go, this one-stop shopping is very 1960s. Back then, every component of a technology system had to be the same brand because every individual provider designed their hardware and software as a closed system, incompatible with anyone else’s products.
But broadly speaking, that hasn’t been the case for at least two decades, ever since the integrated circuit and IBM Corp.’s PC brought standardization to computing. Huge corporate clients may still prefer to deal with a single vendor because they value consistent servicing, but most other enterprises and consumers are looking for price and performance, the nameplate be damned.
One would think that this lesson had become ingrained in HP’s DNA, for it inherited two companies that had been overrun by the trend. Digital Equipment Corp., which once dominated the minicomputer business, couldn’t adjust to the PC age and got acquired for its technology by Compaq Computer Corp. in 1998. Compaq, which sold its PCs through retailers, couldn’t adjust to the build-to-suit, mail-order sales model pioneered by Dell. Left spavined by competition as it was forced to sell mostly me-too personal computers and even high-end servers, it merged with HP in 2002.
Fiorina boasted of HP’s superior innovation, even though that’s an empty claim in a technologically mature industry. “If you are a technology company, you must innovate,” she told my colleague Terrill Yue Jones last month, thus proving she had completed her transformation from master salesperson to smoke-blowing machine.
The fact is that HP technology is all but invisible in some of its product lines. Determined to move into the incredibly competitive business of consumer electronics, the company started marketing Apple Computer Inc.’s iPod -- identical to the original article except for an “HP” stamped on the case -- as the “Apple® iPod by HP.” (That narrowly beats out “Los Angeles Angels of Anaheim” as dumbest moniker ever.)
Fiorina’s big consumer idea was a hybrid computer/home-theater-in-a-box. But it looks like a showcase of everyone else’s innovation -- not HP’s. The operating system of the z545 Digital Entertainment Center is the Windows XP media center edition, a product of Microsoft Corp.; it uses a Pentium chip, a product of Intel Corp.; and its music file storage and retrieval platform is iTunes, a product of Apple.
Beyond those elements, the z545 bundles together a TiVo-style personal video recorder, a DVD/CD recorder and player, two TV tuners (“Record up to two TV channels simultaneously!”), two hard drives totaling 360 gigabytes in capacity and some other hardware.
Out of curiosity, I spent a few minutes on the Web to see what I’d pay for all these components separately, without the assistance of HP’s innovative brain trust. The bill came to a little more than $900. HP sells the thing for $1,899.99, which puts the implicit value of having one remote control to operate a “sleek, black brushed aluminum” housing that “blends with your home theater equipment” at $1,000.
As the man said, you pays your money and you takes your choice.
The z545 has received very high marks from reviewers at high-tech fan magazines such as PC Magazine, which said that considering its laundry list of features, “$2,000 doesn’t seem unreasonable at all.” Two questions: Is the market for it big enough to make HP some money? And how long will it be before either Sony Corp. or Matsushita Electric Industrial Co.’s Panasonic unit brings out its own sleek, black-brushed aluminum boxes? (Several specialty electronics firms are already in the market.)
Digital entertainment products may get commoditized even faster than the PC, marking yet another business in which HP will be an also-ran.
When a hardware category becomes so thoroughly standardized and margins shrink, any company burdened with HP’s overhead usually heads for the hills.
IBM last year announced it was dumping its PC business on a Chinese company for $1.25 billion. HP, by contrast, still says it has no plans to restructure its product lines, an astonishing sign of devotion to a failed strategy.
One is tempted to think that statement is merely a way of waiting a decent interval before throwing Fiorina’s business model over the side after her. If it isn’t, maybe it should be.
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Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.
