Our current, October 2011 vendor scorecard provides a qualitative rating for large systems vendors such as Hewlett-Packard, Oracle, Dell, IBM, EMC and Cisco. The note contrasts these ratings with quantitative MGI Index scores measuring business model efficiency and with growth and valuation parameters. The recent upheaval at HP provides an interesting backdrop to our rating scores. With a drop in HP stock, a number of analysts and investors have been turning positive on the company. We think that such enthusiasm is a bit premature. HP’s stock is cheap for a reason. In a related research note: “Who Benefits from HP Disarray?” we analyze the opportunities and threats for HP and its peer group.
HP customers, investors and business partners are beginning to feel like they are stuck in a bad remake of the movie "Groundhog Day". In the film, Bill Murray's character is stuck in time and keeps waking up to face the very same day, with the same challenges and problems.
Three of the last HP CEOs were forced out under some sort of a cloud (not the computing kind). After expelling Carly, Mark and Leo (these sound like hurricane names), the board rushed to hire Meg Whitman as CEO and appointed Ray Lane as the executive Chairman. The new team has a big mess to clean up. The Personal Systems division decision is likely to be reversed. The idea to get out of the PC business was probably not a bad one, but HP is totally unprepared for such a non-linear move. The Autonomy deal will likely go forward, but the acquisition better work, - HP has had a terrible track record of absorbing companies. The EDS purchase caused serious indigestion, and HP inherited a number of contractual issues with it. The list of HP acquisition orphans is long and unmemorable (except for high purchase prices).
In the meantime, competitors are circling the weakened HP turf. We believe, the company still has some time and room for maneuver, but a recovery will require signs of sure-footed, thoughtful, strategic decisions, - so far we have not seen any evidence of that, but one can hope...
In the new research report on HP, we dissect HP's current situation, assess chances for a sustained recovery and risks of market share loss to competitors in key areas such as processors, storage, software and services.
Despite the huge cash hoard sitting on software companies balance sheets, perennial predictions of a massive wave of 2011 industry consolidation have not materialized. SaaS company mergers are few and far between while enterprise software companies have been cautious to avoid any non-accretive deals. We believe that amongst several possible industry merger transactions, Manhattan Associates, a provider of supply chain execution software is now themost likely acquisition target. Among the short-list of potential acquirers are SAP, Oracle, Infor, and JDA Software as well as a few private equity firms.
The passing of Steve Jobs is impossible to capture in words. At MGI Research, we are a mixed PC/Apple shop, with more and more work being done on Macs. Given the massive MGI score of Apple (9,171 MGI-X score vs. 2,156 for Oracle, and HP's abysmal 1,971), though, we are admittedly impressed by the organization that Steve built. Not so much for the stuff on the surface, which is mostly beyond precedent (e.g., success of Apple Stores, the iPhone, iPad, etc.), but for his command of the details on the inside of the operation. Steve knew things like manufacturing and supply chain and strategy at a level deeper than any current CEO in the game today (or previously).
A longtime friend who is in the logistics and supply chain game passed along the following personal story. Although redacted for confidentiality purposes, it displays the raw, intuitive genius of Steven P. Jobs. This was part of a Skype exchange, so pardon the rough text and my [crude] edits.
"My kids asked me tonight to dig out the original Mac - the one you used at your house a few decades ago...It and he were the reasons I went to Silicon Valley [my friend and I are from the Midwest]. I have a signed 20th Anniversary Mac from Steve as a present for designing the iMac (Biondi Blue) Supply Chain. That opportunity came because I was the Apple (and NeXT) Account Manager for Skyway before going to BAX [both are/were logistics companies that handled the transportation and supply chain of NeXT and then Apple].
We spent 7 weeks in the Beatles room, and Steve treated us like dirt, then he would say that he was going to put us on the front page of the WSJ for transforming the way PCs were made. We did 89 747 Freighter charters and delivered 1.1 million iMacs in 90 days for a fee of over $150 million. It got me promoted from VP to SVP at BAX. The contract is still in place and now running at about $xxx million per annum for xxx (now DB Schenker).
At the time of the Microsoft investment in Apple (about $150 million for complete patent sharing seems like a bargain these days) he recommended us to Jim Allchin, and we did over 100 747 F charters for the original XBox. That contract is also still in place, and Bill B., (who used to work for me) is now running SCM for MSFT.
We did the iMac for $16 (inbound components to LG), and $54 per unit delivered anywhere in the world. He said later that he had built $100 per unit into the plan - and another $100 per unit for advertising. He used to charge us $40 for any retail packages delivered with blemishes. He understood that for $1000+, people want a "great customer experience". Now people post their "unboxings" on YouTube.
Steve was in the midst of approving the Chiat Day "Think Different" campaign and for 2 days we got moved to the basement across the street. He did not want to have the posters of Ghandi and Thomas Edison initially because he thought people would think he was putting himself in their company...in his own way, he was concerned about appearing vain. At the time, there was an opportunity to strike a hard blow on the competition by buying all the air freight capacity out of Asia, and punishing their holiday sales.
Tom J., who worked for me told Steve that 100 747F charters would wipe out the capacity for the peak season. Steve said: "Pre-pay it on my authority." This was in August. [The North American release of the iMac was on August 15, 1998.]
It hurt Compaq, who had to ship ocean freight which did not arrive until February, missing the holiday retail season, but the worst casualty was Nintendo.
So I owe a bunch of my career to Apple - like tens of thousands of others. It was stressful and risky, but I always felt lucky to have a ring-side seat, even after I was not in the ring on a day-to-day basis."