What does HP's new strategy mean for the public sector?

As Hewlett Packard's stock price plummets and HP TouchPads are going for a song, the fortunes of one of Silicon Valley's oldest companies and the UK biggest provider of ICT and services to the public sector have been thrown into question. 

To summarise last week's shock events, HP CEO Leo Apotheker used the announcement of the firm's quarterly financial results to disclose his vision for the firm which he tool over the helm late last years. Now nine months on, Apotheker's version of HP has been born - and Wall Street isn't liking what it sees so far. 

Essentially Apotheker - a self declared software man - wants the firm to get out of the hardware game. To that end, the firm will be looking to dispose of its Personal Systems Group (PSG) - in the bowels of which still lingers the remains of Compaq - and dramatically killing off its so-called iPad killer, the TouchPad, which was only launched a couple of months ago. The only hardware envisaged in the 'new HP' will come from the printer division, but to all intents and purposes HP will be out of the hardware business. 

"I've looked at all of the businesses. I examined each in depth and carefully considered a path forward. These are tough decisions," he said. "Secular trends impacting our PSG [Personal Systems Group] business as consumers are changing the use of the PC. The tablet effect is real and sales of the TouchPad are not meeting our expectations. We intend to evaluate a range of options that may include, among others, a separation of PSG from HP through a spinoff or other transaction."

Ironically enough this decision comes at time when HP"s former BFF and now archest of enemies Oracle has moved into the hardware game through its acquisition of Sun Microsystems and the hiring of disgraced former HP CEO Mark Hurd as Oracle President. 

The services business - bolstered in recent years by the acquisition of EDS which increased HP's footprint in the public sector - will live on. although Apotheker concedes that this needs some loving attention as well, which it will get from new services boss John Visentin. "While I feel good about the progress and increased level of rigour we're building, I reiterate that this will be a multi-quarter journey," explained Apotheker. "There are also areas requiring increased discipline and improved processes. On the investment side, we continue to invest in emerging services to accelerate growth, including Cloud, industry solutions.

"What we're trying to achieve is we're trying to achieve a much better mix of higher value-added services in our portfolio of services that we offer our customers. From the execution standpoint, we are investing in sales, delivery and business development capabilities and so we can increase our coverage. We're increasing our bench and application services. At the same time, we're improving our tools and processes, and we're adding a significant level of account level rigour."

The firm is due to put more flesh on its Cloud commitments in the next few weeks - probably at the VMworld conference - , but it seems clear from Apotheker's comments that having an enterprise Cloud pitch will be used as a competitive differentiator against Oracle while enabling the firm to boast a set of Cloud services options that enable it to meet IBM on some form of level playing field.  These sit alongside a working partnership with Microsoft for Azure, which may yet lead to HP following Dell's and Fujitsu's lead in delivering Azure-based services. 

But before all this can work, Apotheker needs to stop the slide on the company's share price which plummeted on the announcement.

At the rate at which the stock price has collapsed, many Silicon Valley observers were openly questioning how long it would be before Oracle's Larry Ellison makes a bid for the firm - which if successful would no doubt effectively see Hurd back at the helm of his old firm! It would also give Oracle's public sector ambitions in the UK an enormous boost. 

Others even speculated that Apotheker might try to forge a merger with his old firm SAP, although given that he was ousted from there that would be a difficult one to swallow. 

But whatever transpires, the UK public sector needs to keep a close eye on developments. Thanks to the scale of HP's footprint across government, those managing existing contracts and those contemplating future procurements will need to be confident that they are content with Apotheker's vision for this most critical of suppliers.