Is It Any Wonder Hewlett-Packard Is Dying?

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Here's something you don't see every day. After several years of declining revenues and earnings due to internal strife, missteps, and a stubborn adherence to a dying PC industry, Hewlett-Packard (NYSE: HPQ  ) made an interesting decision a few days back: It kicked many of its server customers to the curb. Upsetting customers is rarely a good thing, even for the best of companies, but for HP it's absolutely mind-boggling.

In a blog that was surely expected to cause little more than a raised eyebrow or two, vice president of HP's server and support unit, Mary McCoy, authored a missive entitled, "Customers for life" a few days back. Sounds good, right? Unfortunately, all McCoy's note did was succeed in enraging many of its server customers and forced her to follow up with another ditty to "provide more context for the decision."

She said what?
In McCoy's original note, she begins by stating that "effective February 19, 2014, we will provide firmware updates through the HP Support Center only to customers with a valid warranty, Care Pack Service or support agreement." No service agreement? No support.

Lest HP customers get the wrong impression -- you know, that it's strong-arming customers to purchase a warranty or service agreement or fend for themselves -- McCoy added, "[W]e are in no way trying to force customers into purchasing extended coverage." Really?

You'd think that would be enough -- telling HP firmware customers that it would provide fixes and updates to those with a service contract -- but McCoy didn't stop there. In what would be laughable were it not for the fact that she wasn't kidding, McCoy said that HP's new policy of abandoning its customers was aligned with "industry best practices and is the right decision for our customers and partners."

One of the many comments from HP customers -- virtually all negative, of course -- pointed directly to the "industry best practices" statement, noting that others in the industry, namely one of HP's biggest competitors, and a company much further along in its transition away from hardware, IBM (NYSE: IBM  ) , didn't follow this "best practice."

After further review
To her credit, McCoy followed up her initial "news" with some clarification about which customers are affected and how. Perhaps most important was that HP's new policy is for ProLiant server clients only. McCoy went on to explain that HP is only putting, "entitlement requirements" -- in other words, the need to pay for a service contract -- on ProLiant's ROM and "complex programming logic devices" firmware.

If you're of the mind that HP's decision to stick it to only a few of its customers makes its decision tolerable, McCoy cleared that up. In her "More information on HP firmware availability" blog, she reinforces what's obvious to anyone who read either message: If a ProLiant client wants service, they need to pay for it. McCoy explains the value of purchasing a service contract by saying, "It is through the sales of warranty in the product, and sales of support services after the warranty, that we are able to invest to create great customer experiences with our products." So, HP ProLiant warranty customers are providing it with the funds needed to invest in R&D?

Final Foolish thoughts
HP fans are quick to point out that in spite of declining revenues and a snail-like transition to the 21st century, its stock is up over 70% in the past year, and they're right. The question is, why? Because CEO Meg Whitman has trimmed thousands of jobs to help bring costs down to match the drop in sales? When HP stock jumped late last year after Whitman said its revenue declines should slow this year and -- hold your breath -- possibly increase by 2015, that said it all. Market sentiment, not fundamentals, is driving HP right now, and that's a recipe for disaster.

Ginny Rometty, CEO of IBM, was appointed to the top spot a little over a year ago, and already has Big Blue positioned as a leader in cloud technologies and big data, both burgeoning markets not reliant on hardware. Not to mention IBM and HP are trading at about the same multiples, and IBM pays a better dividend yield. As for Whitman, it's been about two and half years since she took over the reins at HP and all there is to show for her tenure are promises it will get better. Oh, and telling some of her customers that they're on their own.

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Read/Post Comments (12) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On February 12, 2014, at 3:08 PM, oolioo wrote:

    I'm 76 and retired. I've been in the computer and datacom business all my life. It has always been necessary to buy a service contract on anything I've ever bought AFTER the warranty runs out.

  • Report this Comment On February 12, 2014, at 4:23 PM, jkf359 wrote:

    I fail to see how not getting support OUTSIDE of warranty is a surprise. If anything it states that HP had been doing this previously, which is pretty impressive. Non-story.

  • Report this Comment On February 12, 2014, at 5:19 PM, PropioFurbo wrote:

    Tim, you're a joke. You state that IBM and HP have about the same multiple (actually, IBM's is about 8% higher) but that IBM pays a better dividend (yeah, about 5% larger). Can't you do a better job of making your obvious bias?

  • Report this Comment On February 12, 2014, at 8:19 PM, timbrugger wrote:


    Unfortunately, it wasn't a non-story for all the customers that complained. What HP initially alluded to was that patches, fixes, and the usual updates that accompany most any hardware or software were reserved for those with warranties. That's NOT the norm. I shouldn't have to buy a service contract to get fixes for the hardware and/or software I purchased. It was flawed to begin with, that's why there's a "fix."

    During one of its most crucial times in its long history, upsetting (a lot of) customers was a bad move. And, right or wrong, that's what McCoy's missive did.

    Thanks for the posts, folks. As you know, alternative opinions are what Fooling is all about! Tim.

  • Report this Comment On February 13, 2014, at 12:54 AM, shesalloverit wrote:

    Tim, if your statements, positions, and posturing weren't so fatuous, we could almost excuse them as being simply biased based on positions held by your company ....... oh wait .... that IS the point, isn't it? lol

  • Report this Comment On February 13, 2014, at 1:54 AM, JimRivers wrote:

    Tim, you hit it right on the mark. I have supported Whitman in the past, but this time she's gone too far with her elitism. It's unfathomable. If someone at HP doesn't fix this, HP will as you say, die. It's not just the firmware PR blunder, it's a steady and increasing decline in every one of HP’s businesses: printer, services, servers and PC’s. Are we going to watch as one of our country’s iconic brands becomes irrelevant and then disappears? If it does, the American public will be sorely hurt and Ms. Whitman will sail into the sunset with her billions... once again.

  • Report this Comment On February 13, 2014, at 3:54 AM, JohnBurness wrote:

    Your headline is absolutely correct... Sorry to say but HP is going out of business. However, it’s not the customer service lapse that’s the problem. That’s just the tip of the iceberg. It's going to get increasingly problematic. The printer business is under attack and losing share, and almost $1 billion of its profitability is dependent on the yen. As the yen goes, so goes HP’s printer business.

  • Report this Comment On February 13, 2014, at 4:38 AM, Spreaders wrote:

    Strange thread. Author clearly not an industry insider. The HP plan has been the industry norm for a while. With Oracle there is no chance of getting a patch/firmware upgrade/machine code without being under contract, and IBM with their "Fix Central" slammed the door on non-contract clients downloading code a couple of years ago. With the profit in hardware dwindling and the differentiators being in software and service the big suppliers are doing what they can to protect their R&D investment and IP. Makes sense to me.

  • Report this Comment On February 13, 2014, at 10:42 PM, theglobalfool wrote:

    Wow! really? HP is dying ? because they decided to ask people to pay for support after warranty expired - I really think companies should offer free support and service for ever! I mean whoever thinks they could ever get away with charging for things like post warranty support. That too for firmware - which pretty much writes itself and requires no engineers to be employed or for that matter paid. I think they should even start handing out free hardware - I mean why pay for anything, what does it really cost to build servers now a days , huh ?

    Excellent article buddy! Just keep up this analysis and you are surely going to be the next Wolf of wall street!

  • Report this Comment On February 14, 2014, at 1:11 PM, gunky wrote:

    So let me get this right. HP is dying because its now doing what IBM and Dell have already been doing for some time - asking customers to pay for service and patches outside of warranty. Tim, my man, using your logic I should be able to take my 10 year old Honda to the dealership and get free repairs. Please try harder to hide your bias against HP.

  • Report this Comment On February 14, 2014, at 3:29 PM, maddipoti wrote:

    Tim, Do your homework before you write anything stupid like this? Microsoft, cisco, dell, IBM all these companies require Ser # or some sort of unique identifier to provide a fix to the software/hardware issue. If the warranty period is expired no service should be provided. Also, there are several many illegal/black market/in-valid/expired software installations and how do a company like HP distinguish between a legitimate and illegal software? You need to have a process and there is nothing wrong with what HP is doing and I buy HP products all the time. Dont waste our time posting these kind of articles, you may be liable to law suits if you post baseless articles like this.

  • Report this Comment On February 15, 2014, at 5:42 AM, Converterduck wrote:

    This is a non-story. I approve HP's position. Support is a margin rich business and if you give services away for free, then you miss a biz opportunity. Standard practice in IT.

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Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

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