H-P Moves to Retain Corporate Customers Ahead of Breakup

HP thinks it can retain it's enterprise with high margin customers. Aivars Lode avantce

H-P Moves to Retain Corporate Customers Ahead of Breakup

Company to Offer Versions of Integrity Server Lines that Use Intel’s Xeon Chips

Superdome and NonStop servers are still used by banks, telecommunications carriers and other companies particularly concerned with reliability. Getty Images

By Don Clark

Dec. 2, 2014 12:04 a.m. ET

Hewlett-Packard Co. , as it prepares to split in two, is unveiling on Tuesday a plan to help retain important customers by allowing them to leave behind a processor technology that has found few takers besides H-P.

The Palo Alto, Calif., company said it would offer versions of two computer server lines under H-P’s Integrity moniker—Superdome and NonStop—that will be powered by Intel Corp. ’s Xeon chips, which are widely used in other servers from H-P and other vendors. Its Integrity machines now use Intel’s Itanium chips, a specialized strain of technology that sprang from a joint venture between the companies two decades ago.

Revenue from these “business-critical” servers, as H-P calls them, declined 29% in the quarter ended in October over a year earlier. But Superdome and NonStop servers are still used by banks, telecommunications carriers and other companies particularly concerned with reliability.

Such systems accounted for only $929 million in revenue in the fiscal year ended October 31, dwarfed by the $12.5 billion generated from more popular x86 servers, but keeping good relations with customers that use them has other benefits. Such companies buy software, services and other hardware from H-P that hinges on the applications running on the Superdome and NonStop machines, said Patrick Moorhead, an analyst with Moor Insights & Strategy.

“It’s about keeping some very high-margin customers,” he said.

Holding on to these customers will be an important factor in H-P’s plans to split the company in half, with one entity serving enterprises and another handling personal computers and printers.

“These are a very conservative type of customers—they don’t want to take any risks,” said Antonio Neri, senior vice president and general manager of H-P’s enterprise group. “But eventually they have to move to a new architecture.”

He stressed H-P doesn’t plan to stop developing Itanium-based systems but said the benefits of moving to Intel’s mainstream Xeon technology are significant when combined with other enhancements H-P is offering.

Intel, which introduced its last Itanium model in late 2012, has disclosed plans for a successor, which is code-named Kittson. The chip maker hasn’t said when that product will arrive nor described models it may develop after that. Intel, based in Santa Clara, Calif., gets the bulk of its revenue from chips based on the x86 technology that evolved from personal computers. It announced plans with H-P to diverge from that approach in 1994, when it faced competition from a new breed of chips designed by companies likeInternational Business Machines Corp. and Sun Microsystems Inc.

Itanium chips finally went on sale in 2001 but failed to attract many customers besides H-P. Meanwhile, Intel kept rapidly improving its x86 Xeon chips.

H-P’s Itanium-based Superdome line, which runs the Unix operating system, is used by businesses for a variety of heavy-duty computing chores. The Nonstop line handles more sensitive jobs like ATM networks and stock exchanges.H-P inherited these crash-resistant machines from former operations of Tandem Computers Inc.

Where most servers these days include one to four processor chips, the two H-P systems compete with machines from IBM and Oracle Corp. that have many more. The new Superdome model to be announced Tuesday, for example, has sockets to plug in 16 Xeon chips and offers nine times the performance of a conventional H-P system with eight Xeon chips, the company said. H-P has developed accessory chips and software to speed up communications between chips and improve reliability.

For the Superdome system, H-P is encouraging customers to move to the Linux operating system or other software, Mr. Neri said. H-P is porting NonStop software to run on Xeon chips. The company is offering services to help customers migrate to the new technology in both cases.

H-P is announcing the new Xeon-based offerings at an event in Barcelona that includes software and data storage upgrades. H-P paid hundreds of millions of dollars to Intel to keep working on Itanium, according to documents disclosed during the litigation. A state court judge in California ruled in 2012 that Oracle was contractually obligated to keep supporting Itanium, a ruling that Oracle is appealing.

One factor pushing H-P away from Itanium has been reduced support for the technology by software companies. Oracle, for example, in March 2011 said it would stop developing new versions of its popular database software for Itanium-based computers, a decision that prompted H-P to sue the software maker.