Sam Palmisano Takes Shots at Hewlett-Packard
By Larry Walsh
In a rare interview, IBM CEO Sam Palmisano took some shots at Hewlett-Packard.
However, the real point of the interview with Wall Street Journal Editors is to defend Palmisano’s strategy of focusing his company on profitability and shareholder value, rather than on sheer size. In his eight-year tenure so far, Palmisano has succeeded at that, but at the cost of losing the crown of world’s largest IT vendor to HP. At one time, IBM dwarfed all its rivals. Its size was a blessing and a curse — it had unparalleled market clout, but was also the target of US antitrust investigations.
Now, HP is the largest computing hardware vendor and IBM is second, followed by Dell and Oracle. Most of IBM’s revenue comes from software and services, not hardware. However, IBM is still in the R&D business and the company gets plenty of patents and earns plenty of money licensing its patent portfolio.
In the WSJ interview, Palmisano ripped former HP CEO Mark Hurd for eviscerating HP’s R&D budget, which looks like a fair criticism.
Remember Carly Fiorina’s campaign to return HP to its innovative roots by adopting the slogan, “HP Invent?” That might have been simplistic window dressing, but all pretense of HP as innovator seems to be gone at this point, replaced by HP as acquirer.
And on Sept. 13, the day before the Palmisano interview appeared, HP made yet another acquisition – security and compliance vendor ArcSight.
The idea of cutting back on your own R&D in favor of acquisition is the business strategy pioneered by Cisco with great success. The idea is to let the venture capitalists and startups be your R&D operation, using your healthy stock valuation to buy the startups when it looks like they are onto something. Cisco has made hundreds of acquisitions in this way.
Both IBM and HP have borrowed this strategy. But Palmisano makes a fair point in noting that HP got into a bidding war with Dell over 3Par. That’s a different business model entirely. You might argue, as Palmisano does, that getting sucked into overpaying is not a business model at all.
The fact that Palmisano would even mention a competitor, much less take shots at one, is striking. When IBM was larger than all its competitors combined, the company never disparaged any for fear of antitrust threats. No more.
Another interesting point in the interview: Palmisano does not plan to retire when he turns 60 next year. The 60-mark had been an unofficial retirement point for previous IBM CEOs, including Thomas Watson, Jr. My take – why shouldn’t he stay? No one knows the company better than IBM lifer Palmisano. The company does not need a change in direction or leadership and Palmisano is not showing a lot of wear for his age. He’s seven years younger than Larry Ellison, who’s nowhere near stepping down from Oracle.