Gartner grades HP, CA with 'caution' rating

Hewlett-Packard (HP) has been graded a problematic vendor by research group Gartner, owing to ambiguity over parts of the newly merged company's product roadmap, and organisational instability.

Gartner rated HP with a 'caution' at the end of last month due to a range of uncertainties over some of its product lines, and also doubts around its ability to execute smoothly on its integration with Compaq Computer.

The rating serves as a warning to clients to keep an eye on any significant changes in HP's strategic direction and a way of increasing clients' leverage in negotiations with the company.

Gartner believes HP faces significant challenges in establishing how it will protect its installed base in various product lines, in particular in its server business. "[HP] is dealing with one in five installed bases in the server market, and to maintain its profitability in these markets is going to be a challenge," said Matthew Boon, Gartner's principal analyst for hardware platforms, at the firm's Symposium/ITxpo in Sydney this week.

Also, the company has a weak software strategy.

While HP has committed itself to being a Web services and .Net player, its software strategy centres on its network management offering Openview. More important, HP has fallen out of the Web services boat having abandoned several of its middleware products in July, leaving for dead much of the application server stack it acquired from Bluestone. Instead, HP will address that market segment through partnerships with other vendors including Microsoft and BEA Systems.

The most immediate competitive threat to HP is Dell, which due to its foray into the high-profit enterprise printer market, poses a threat to HP's printer business.

Vice president and research area director for Gartner Research, Betsy Burton, said that HP's printer business drives the company's profitability and as such it is a "golden calf and Achilles heel."

" What if Dell was to come in and sell printers for $100 with five cartridges? Even if it weren't the best printer, Dell would only have to erode HP's position by 4 per cent to have a major impact on HP's profitability," she said.

The other key challenge for the vendor is its ability to pull off a smooth integration with Compaq.

While HP has achieved cost efficiencies in the billions of dollars range through workforce restructuring, the question remains whether more people will be culled, analysts agreed.

Meanwhile, Gartner doubted that ex-HP president and former Compaq CEO Michael Capellas' sudden departure from the company last week would have a direct impact on the future of HP.

However, Burton speculated the move could dampen the morale of former Compaq employees, saying: "With someone quite flamboyant like [Capellas], I think people would gravitate to that and that he would have been good for morale."

A relatively quiet vendor of late, Computer Associates (CA) has also been rated with an overall caution by Gartner, due to its weak financial position and short-term growth strategy.

The company has short-term debts of $US3.2 billion. While analysts consider CA a strong player in the enterprise systems management space, they said its debt would downgrade market perception.

-- With Tom Sullivan.

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