Project Moonshot: a giant step forward for HP?

It has been a week of high drama for computer giant HP, book-ended by board resignations – including the departure of chairman Ray Lane – late last week, and the company's high-profile launch of new server technology and fresh corporate strategy, this week.

And in an Irish side-story, HP turned the sod on Monday on a new 90,000sq ft research and development facility in Galway, with the potential for new jobs in construction and IT.

But the road has not been smooth for HP in recent years.

Alongside dropping revenues, the Silicon Valley pioneer has struggled with internal scandals, and fast turnover at the top level, with four chief executives in just three years, some of whom have left under a cloud.

Mark Hurd departed over a relationship and board questions on expenses; 11 months later Leo Apotheker said goodbye after the controversial acquisition of UK search giant Autonomy, on which HP has taken an $8.8 billion write-down.

Now headed by former eBay chief executive Meg Whitman, HP has seen its shares bounce back, and shareholders are clearly looking forward to fresh blood on the board. But investors want to see solid strategy and rising revenue, plus growth in higher margin products and services.

HP's Project Moonshot, which stars its new Gemini servers and was launched on Monday, is being presented as the company's first big waymark on the road to a turnaround.

"It is really revolutionary. We would compare it to when we introduced X 86 chips in 1989, and really changed the market," says John Hinshaw, HP's executive vice president of technology and operations, who was in Ireland for the Galway announcement.

Those are big claims, but Hinshaw says the new servers, running on the low energy ARM chips that now dominate the mobile market, are 80 to 90 per cent more power efficient and so run at significantly lower cost, and take up less space. Eight or nine racks of normal servers can be replaced with one of Moonshot, he says.

Within HP, he says they have been trialling the servers to run the HP.com website, which receives three million hits a day. “It looks like we’ll be able to run that site on the energy equivalent of 12 60-watt light bulbs,” he says.

Moonshot’s a big bet for HP, whose more costly, high-margin, large capacity servers have proven less attractive over time to companies than running lots of unbranded, cheap, smaller servers. But there are a significant energy, cooling and maintenance costs in running big racks of cheap servers in data centres, a pain point that Moonshot hopes to address.

Does HP then really need to retain divisions in low-margin areas such as personal computing? Many analysts have suggested the company should sell off divisions in more unproductive, non-core areas.

“There are no plans to split any of the companies out. We strongly believe in the power of our core products in the portfolio,” he argues. “Customers that standardise across that portfolio, see benefits.” He points to film company DreamWorks as a case study of a company that runs HP, from computers to management software all the way down to printers.

“Our strategy that Meg has laid out, is very clear. First and foremost, we are an infrastructure company – we build world-class infrastructure from the PC to server and to anything in between.” On top of that, the company can “layer on software”, as well as services.

“This enables HP to deliver one-stop shop solutions, and really, solutions that are for new style IT”, in the growing areas of cloud computing, information security, big data, and mobility.

Hinshaw stresses HP’s focus on newer areas of technology several times, adding that they are the focus of the Galway operation, too. It is a deliberate pitch. Analysts have criticised the company for trailing rivals in refocusing into these new areas of the market. Hinshaw says one of HP’s strengths is combining old and new, across markets and sectors.

Strategic shifts
"We think there is value in being the only company out there offering the entire spectrum. Other companies have decided to do just the enterprise. But we believe in being there for all the on-ramp and off-ramp technologies."

The “on-ramp” into computing begins with less expensive devices such as tablets, laptops and desktop PCs, part of the huge personal computer division of HP that has the lowest margins and at the moment, falling market share and revenue.

It has also been plagued with strategic shifts and dropped products. HP acquired the ailing Palm to obtain its WebOS operating system and launch new devices, but Apotheker pulled HP’s much-hyped WebOS tablet almost immediately (now replaced by Android and Windows tablets). LG moved to buy some of HP’s Palm assets a few weeks ago, and HP will retain others, Hinshaw says.

The PC division “could be lower margin, but it also may be the entry to new opportunities down the road with the customer,” argues Hinshaw.

The “off ramp” technologies include those in HP’s printer division. “We still see an opportunity for high-end printing in particular,” he says.

Is he concerned about the turnover on the board? "Turnover is very normal for any company's board," insists Hinshaw, who in the past, held chief information officer posts at Boeing and Verizon.

“We have a terrific board. There are extremely supportive, extremely collaborative. They also have some tough things to deal with.”

Part of a turnaround
Hinshaw should know: Whitman has given him the job of trimming $3.5 billion from HP's costs over the coming year.

Won’t these challenges make it difficult to attract a high-calibre chairman?

“I think it’s actually very attractive to be part of a turnaround,” he says.

He has no doubt that, in Whitman, the company has the right leader at its helm.

“It only takes a few minutes with Meg to realise what a terrific leader she is, that this is someone with charisma, vision, focus. And the strategy to take HP forward into the future.”

This year will be telling in that regard, as observers and investors wait to see if Moonshot lands successfully and kicks off a new era for one of Silicon Valley's most venerable technology companies.

*This article was amended on April 12th, 2012 to amend a factual error.