Prediction: HP Cuts Loose Their Networking Hardware And Transforms Into A True Networking Alternative

HP’s startling announcement, two weeks ago, to discontinue Touchpad and all webOS-based products, purchase Autonomy Corporation, and split off its PC divisions, caught the market off-guard. Hewlett-Packard Chief Executive Officer Leo Apotheker feels the company could be the next Polaroid in the consumer products and mobile device war — a business that requires companies to be “much faster than a conglomerate can move in most circumstances.” The reality is this new strategic direction should not have surprised anyone who has read Leo’s résumé; it was the board’s intention to hire a strategic thinker who could evolve the company into a software and services organization by leveraging HP high-margin assets coupled with a few acquisitions. HP has one of the strongest orchestration software portfolios in the industry, which encapsulates everything from enhancing user experience through its APM solution all the way down to controlling Layer 2 through the Intelligent Management Center (IMC). With strategy toward creating and servicing cloud infrastructures, HP should examine what it has and figure out if its current networking portfolio differentiates the company, changes the way networking is done, and aligns HP’s networking division to HP’s strategic goals.

Three things I&O teams should think about when it comes to HP:

  • HP Networking’s division has not done much for HP, which could be a red flag for I&O managers investing in their solutions.  HP could, at any time, could cut the networking division--like they did with their WebOS and mobile division--based on their razor thin results.  At the beginning of 2008, HP owned about 9.5% of the market and 3Com owned 10% of the market (port share data from Dell Oro report, 2011 Q1). Three years later, HP only owns 20%. Their growth in revenue market share can be attributed to the doubling of ASP for the ports from the 3Com line. Basically, 3Com was selling to the S of SMB, and now is selling to the new M market, which gives the product line a higher combined ASP or more market revenue share (15% YoY). For spending $2.7B (not including integration costs) on 3Com, HP has reaped 0.5% gain in port market share.
  • If HP got serious with its “alternative” approach to networking, HP could step out from Cisco’s shadow and blaze a new trail; a new approach that infrastructure and operations managers are crying out for. Otherwise VMware won’t be spending so much money marginalizing the de factor networking solutions in the datacenter today. With its heritage and strong software portfolio, HP is in a better position than VMware to break down the technology silos that exist within operation and infrastructure teams and drive the efficiencies business are expecting from virtualization. With HP’s feature-rich software tools combined with HP Lab’s innovative work with OpenFlow community, they have ability to orchestrate an entire infrastructure full of abstracted resources.
  • HP could sell off the networking hardware business and invest the estimated $5B (3Com + ProCurve value) HP would receive into developing a virtual network infrastructure (VNI) solution — which is Forrester’s vision for a Layer 2-7 network stack composed of virtual, abstracted software, not hardware. This could be done by building on their IMC capabilities, OpenFlow work, and HP Software Suite and acquiring technologies like the ones found at Zeus, Vyatta, BigSwitch, Nicera, and Aerohive to overlay on a x86 and generic commodity ASIC network. In a roundabout way, HP has been trying to commoditize networking by harping on acquisition and lifetime warranty costs; as Leo points out, there is no future for HP in commodity hardware. Thus they could leverage $5B from the proceeds of the hardware division and capitalize on the R&D money they would need to spend on switches, like the A10500, to catch up with the other networking vendors.

With HP’s partnerships, converged infrastructure, virtualized networking solutions, HP Labs OpenFlow innovation, and topnotch software orchestration tools, I&O professionals could create virtual network infrastructure that VMware could only dream to create, while aligning to HP’s software, services, and cloud strategy. HP’s VNI could offer I&O organizations a true alternative to:

The problem is HP had better get started soon. It’s only a matter of time before virtualized networking will be deployed. Already, the L4-L7 vendors have working solutions. As for L2-L3, current networking vendors (NEC, Extreme, etc.) are working with OpenFlow teams to create software controller-based solutions. New companies (Big Switch, Nicera) are being formed.

Do you think HP should try a different strategy? If they do come out with VNI solution, does HP still need the 20% hardware market share, mostly in the SMB space (based on ASP per port), to be considered a networking vendor? Does it matter who provides the commodity hardware if HP offers the management and control plane solution? If they do sell their hardware portion of networking, can they build network credibility off their services, ESS, and business software divisions?

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Comments

No way

If they kept the name ProCurve - yes - but they rebranded it HP Networking and created ESSN so this one is doubtful.

They need the end to end solution to be competitive with Cisco.

The whole ESSN play is to try and get the three sales forces working cooperatively - right now Server peeps sell servers, Storage peeps sell storage and Network peeps sell Networks.

This penetrates to their VARs - they have tons of very active, very strong HP Server VAR/Partners and then less and less of those guys sell Storage or Networks.

The typical VAR - sells HP servers, EMC or NetApp Storage and Cisco Networks.

They have the cash and they should do the "developing a virtual network infrastructure (VNI) solution" play but quickly integrate the 3COM lines (A-Series) with their ProCurve cousins and go after Cisco/Extreme/Juniper/Force10Dell, etc.

Cisco is coming after Servers - no news here - and they are doing it with a Network-oriented play.

The whole storage market is a battleground with friendly fire (HP is selling EVA and Lefthand and MSA and 3PAR) so they compete with themselves as well as EMC/NetApp.

But dumping Consumer stuff because its low-margin and Not Apple - is simple.

Enterprise stuff needs that entire fabric for an aggressive and higher margin cloud play.

I have no idea what Arista is doing - but HP has the cash - buy them and start the VNI play there.

Great post, and I agree there

Great post, and I agree there is a huge opportunity here for HP. I agree with Rob though that selling all networking HW is probably not the right approach.

CIO's want to buy data center solutions that have compute, networking and storage from one vendor. If you can't offer that, you have to bring in Cisco (which now is a server vendor and thus a competitor) into every deal. That's not a good position to be in.

And Software Defined Networking still needs hardware. IBM bought BNT and Dell F10 for exactly that reason. Software defined networking then allows you to tie together your networking, storage and compute and to provide value on top of it.

Hi, This is interesting. i

Hi,
This is interesting. i like this .i will come back and read again and get more information.