HP, Cisco, other older tech companies struggle to adapt

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Posted: Friday, August 23, 2013 12:00 am

Outsiders often think of Silicon Valley as a constantly changing landscape, a place where fortunes rise and fall with the next great idea. Now some of the technology industry's biggest names are finding out that once you fall behind, it is pretty hard to catch up.

Hewlett-Packard Co. this week announced several significant personnel changes, along with sharply lower revenue and narrower operating profit margins. It was one in a string of disappointing earnings news from big technology companies that has some asking if the industry, after at least five years of growth, is finally slowing down.

“We're doing a turnaround in not the greatest economic environment,” Meg Whitman, HP's chief executive, said in an interview. “Everyone is trying to position themselves for the new style of information technology. The fittest will survive.”

But the bad earnings news from older, big tech companies does not — so far — appear to be spreading to more youthful Internet companies like Google or Salesforce.com, which provide their software as a service over the Internet.

HP's news, for example, comes on the heels of surprising plans announced last week to cut about 5 percent of the workforce at the network computing company Cisco Systems Inc. and continuing issues at giant tech companies like Oracle Corp., Intel Corp. and even Microsoft Corp.

If there is a common thread among these older outfits, long considered bellwethers for their industry, it is that they are all struggling to adapt to a computing world where people access the Internet on mobile devices like smartphones and tablets. Likewise, the information they retrieve is stored in a cloud of network computers that are used by many different companies at the same time.

In some cases, they are big makers of things like personal computers, which people are not buying as quickly as they once did. In other cases, they are making pricey corporate computing gear like routers, which direct traffic on Internet networks. Those routers are still in demand, but they don't typically attract the prices they once did.

“All the traditional enterprises are in a pickle,” said Krish Ramakrishnan, a former general manager at Cisco who now runs Blue Jeans Network, a cloud-based videoconferencing service. “They want to have cloud businesses, but each of their divisions will have to transform differently.”

For HP, a leader in personal computers, printers and computer servers, as well as data storage and networking, sales were down in almost every business. Total revenue was $27.2 billion, down 8 percent from a year earlier. Net earnings were $1.4 billion and, excluding special charges, were about 15 percent below a year ago.

Whitman also announced several executive changes.

If it is any consolation, Whitman has plenty of company. Michael Dell, the chief executive of computer-maker Dell, is fighting to take his company private, a move that will almost certainly mean layoffs as the company moves away from selling personal computers. Last week, Dell reported a decline of 72 percent in net income for the second quarter.

And at Cisco, sales are still strong, but John Chambers, the company's chief executive, signaled trouble ahead with his job cuts, which he said were necessary because of economic “uncertainty.”

While there is no doubt there are broader economic issues impacting big-ticket tech sales, analysts believe Chambers' economic discussion fails to address the technology changes with which Cisco is trying to cope. In recent years, the company has faced a series of cheaper competitors, many of which rely more on software and off-the-shelf components, as compared with Cisco's custom-made equipment.

“They have to generate revenue from what they have always done, while they invest in a future that's very different, and change around their organization,” Ramakrishnan said. “They have to move from selling mostly hardware, to selling software, while all the sharks are feeding off them.”

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