December 1, 1999 12:05 PM PST

HP forms new group to push Internet services

SANTA CLARA, Calif.--Hewlett-Packard is setting up a new, centralized, 100-person organization to sign business deals to boost the company's Internet presence.

Chief executive Carly Fiorina, who took over HP's reins four months ago, called the group HP's "strategy and business development engine" and said it would choose which deals are the best then hammer out the complicated details.

The group, called E-services.solution, will negotiate deals between HP and other companies that want to participate in HP's "e-services" plan in which HP invests technology, resources and/or capital into companies offering services on the Internet, said Nick Earle, who is in charge of the new group.

Though revenue-sharing components of such deals aren't expected to earn HP much for at least a year, the deals are winning the company new customers as well as opening up new revenue opportunities.

Yesterday, for instance, HP announced that it won a contract, over rival Sun Microsystems, to supply Amazon with more servers for the holiday season crush. Amazon will also more strongly emphasize selling HP products.

The new E-services.solution group has the authority to take any HP product from across the entire company and work it into a deal that could involve flexibility around product pricing, the financing terms under which the partner gets the HP products, and in some cases, equity investments by HP, Earle said in an interview.

Though the deals often don't generate new revenue streams--such as revenue from e-commerce transactions or from application hosting--immediately, they do often result in more product sales. Qwest, for instance, agreed to buy $600 million in HP storage hardware, Earle said.

"We do the initial deals. That pulls products and services behind," Earle said. Other company executives, however, have said that HP and Qwest are looking beyond hardware sales and at new ways of delivering computing power to customers.

The e-services push is part of HP's effort to become more aggressive in associating itself with the Internet. Another part of that push is a more direct attack on competing Unix server seller Sun Microsystems--and in particular its sharp-tongued chief executive Scott McNealy. McNealy has derided HP's e-services plan on several occasions.

Fiorina said several equally pointed jabs at McNealy to analysts yesterday were a sign not of sensitivity about his criticisms, but rather of a new approach of being "more aggressive" in taking on Sun.

She said the fact that McNealy is taking potshots at HP, along with the company's new sales force incentive programs, shows that Sun is concerned that HP will succeed in its effort to win back a larger fraction of Unix server sales. McNealy is paying HP "a huge compliment" by recognizing the seriousness of the competition, Fiorina said.

Part of that competitive thrust will come with HP's new Superdome computer, a successor to the top-end V-class Unix servers due midway through 2000. The new server will offer the ability to be partitioned into several smaller systems, said Duane Zitzner, head of HP's computing systems division.

The Superdome initially will come with HP's PA-RISC chips, Zitzner said. Several others have said it will accommodate Intel's new IA-64 chips as well, part of HP's two-pronged chips strategy that began with its N-class and L-class servers.

The IA-64 chips will catch on quickly with workstation users who need to perform lots of calculations, Zitzner said. But widespread adoption in servers will come later--likely in the time frame of the second in the IA-64 family, code named McKinley and due in the end of 2001, Zitzner said. "It'll be a couple years before it really gets there," he said of the new chip architecture.

Sun, meanwhile, will begin selling new servers based on its UltraSparc-III chip in the March quarter, said Goldman Sachs analyst Laura Conigliaro in a report yesterday.

HP's Unix server sales in North America have been growing more slowly than Sun's, a fact that has led HP to revamp its sales force and that spurred several questions from financial analysts yesterday. Fiorina, though, bridles at the scrutiny being focused on just one part of HP's products.

It's fine to monitor the fortunes of the Unix server business, but "it's inappropriate for the entire fortunes of HP" to be viewed as hinging on the products, Fiorina said.

The E-services.solution group will centralize e-services deals, said Ann Livermore, president of HP's enterprise and commercial business and Earle's boss. Earle will "drive the strategy and business development for e-services across all of HP," she said.

The group's first work will focus on arranging deals in six areas, Livermore said: "dot com" Internet companies, small and medium businesses, providers of computing services, providers of electronic trading sites and providers of wireless services.

The group will essentially be an "Internet company inside HP," Earle said. He's hiring about 60 percent of the staff from within HP and the rest from Silicon Valley "dot com" Internet companies, he said in an interview.

 

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