FORTUNE: Big Tech

HP’s golden goose

2008-06-25T05:28:45Z

When is great not good enough? When you’re Hewlett-Packard’s printing group.

A few years ago, the $28 billion business, headed by veteran Vyomesh Joshi, was the goose that kept laying golden eggs. It supplied most of the company’s profit while the PC group lost money and the corporate technology group struggled. Now new leadership and smart acquisitions have fixed the PC and corporate businesses, and printer sales are showing signs of weakness.

Though the printers and ink have so far pulled in a healthy $2.4 billion in profit this year for HP (HPQ), the growth rate is slowing. To cut costs, Joshi last week announced a reorganization that trims the printer group from five divisions to three. The consumer hardware and ink businesses will be collapsed into one unit, laser printers and other enterprise operations will be collapsed into another, and graphics will be the last.

But while HP’s printing shakeup may keep profits healthy for now, it won’t bring new money in the door. The only quick way to do that would be to reverse a troublesome trend: Consumers, who make up the bulk of HP printer sales, are no longer bingeing on ink. HP had hoped that its advances in its printer technology would inspire more folks to avoid professional photo finishers, but that hasn’t really happened. And since HP is already the biggest company in inkjet printers, it can’t grow much by simply stealing customers from rivals.

In a twisted way, HP brought this on itself. A big part of the reason why the printing group is seen as troubled now is that investors have high expectations after it delivered reliable sales growth for so many years. Especially in the last decade, as home PCs became as common as televisions, HP played a big role in establishing the printer as a must-have accessory for producing everyday fare like book reports, letters and photos. Now it’s easy to see that printing isn’t as necessary to the PC experience as it used to be, with online social networks like Facebook and MySpace based largely on sharing information electronically, not printing it. But as printing sales growth slows, investors still expect the division to make up for it somehow.

For growth, HP is looking to markets like large businesses and commercial print shops, where rivals like Xerox (XRX) have more experience. (See HP’s printer challenge.) The good news about those: they print a lot. The bad news: it won’t be as easy for HP to turn big profits. So to fund those efforts, HP is mercilessly cutting costs from its older, slower-growth printer businesses. Joshi has already jettisoned the digital camera business and outsourced much of manufacturing for black and white laser printers, and he’s still looking for more cost savings.

All of which makes sense – but is HP cutting too much, too fast? Under CEO Mark Hurd, the business groups have adopted a disciplined approach to innovation where each group funds tomorrow’s hit by cutting costs out of yesterday’s – a tactic few investors would argue with. But the downside is, innovation can’t be plugged into a spreadsheet, or put on a schedule. Just look at Apple’s (AAPL) computer business – it achieved only anemic growth for years, until a boost from the iPod, retail stores, and a switch to Intel (INTC) chips recently put the shine back on the brand, but Apple continued to invest in it.

So far, analysts say there’s no indication that HP is slicing too far. Which is good – because I’ve heard you want to be careful with a golden goose.

[video] Robots, mood phones and more at Intel research day

2008-06-13T21:52:56Z

Click above to see some of the futuristic technologies Intel is cooking up in its labs.

Earlier this week at Intel’s (INTC) annual research day in Silicon Valley, the company showed projects that could influence the way we live tomorrow.

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[video] Intel CTO talks WiMax, innovation and Apple

2008-06-13T21:54:38Z

Click above to see video of my interview with Intel CEO Justin Rattner.

Earlier this week at Intel’s (INTC) research day in Mountain View, I got a few moments on camera with Chief Technology Officer Justin Rattner where he talked about innovation, WiMax, and the relationship with Apple (AAPL).

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Apple and Intel: Best buddies

2008-06-13T19:02:41Z

Apple CEO Steve Jobs introduced the MacBook Air on stage at Macworld 2008. The laptop was born after Intel dug into its research pile to fulfill an unusual request from Apple. Photo: Jon Fortt

Click above for a video interview with Intel CTO Justin Rattner.

When Apple first announced the switch to Intel chips three years ago this month, Intel chief technology officer Justin Rattner didn’t expect a chummy research relationship, even though the Silicon Valley companies’ headquarters are just 15 minutes apart. Friends had warned him that Steve Jobs and his crew of iconoclasts have little patience for the futuristic stuff of research labs – they’re on the hunt for bold ideas they can build into products within months, not years.

So when Rattner, who leads Intel’s (INTC) research efforts, gave a presentation to Apple (AAPL) brass about the range of projects his scientists were cooking up, he was pleasantly surprised to leave the meeting with a list of a half a dozen that Apple executives wanted to hear more about. One thing that wasn’t surprising: Apple wanted the technology pronto.

“Sometimes it’s a little scary because we’re just not used to going that fast,” Rattner says. “They say, ‘We want to do this next year,’ and we go, ‘Whoa … next year?’ We’re just not built for that. But once you get past all that, I think it’s particularly exciting because they really pull it. And I think MacBook Air is a great example.”

If there were lingering doubts about how well longtime enemies Apple and Intel would work together, the svelte MacBook Air laptop should dispel them. Many observers (including this writer) were unsure what to make of the machine when Jobs introduced it in January, especially given that it lacked two common features: a DVD drive and a removable battery. But in the months since, it has taken its place among Jobs’ brilliant if unconventional bets. The MacBook Air has been the top-selling computer on Apple’s online store for most of the year, even though a similarly appointed laptop without the narrow profile sells for hundreds of dollars less. And Intel can proudly say its researchers helped make it possible.

“That was the first time they actually worked together on a custom project,” says Tim Bajarin, president of the Creative Strategies consulting firm. “Before that, everything was pretty much off the shelf. As a result, the relationship grew even further.”

Intel Chief Technology Officer Justin Rattner didn’t expect such a fruitful research relationship with Apple. Photo: Intel

A few years back, few would have figured Intel and Apple could become buddies. After all, Intel and Microsoft (MSFT) were frequent targets of Apple’s keynote antics during its Macworld presentations. Jobs and his entourage demonized both companies as purveyors of inelegant, cookie-cutter technology. Intel was often cast as the foil when Jobs whipped the covers off of some thin, new PowerPC laptop that had a chip from IBM (IBM) inside: You can’t get this sort of thing with Windows laptops, he’d say, because those Intel processors are so darn chunky.

Still, not everyone was convinced the two companies would be lifelong foes; early in the decade, Bear Stearns analyst Andy Neff correctly predicted that Apple would soon embrace Intel for its scale, innovation and track record for delivering the goods on time. Fulfilling Neff’s vision, Jobs last year invited Intel CEO Paul Otellini onto the stage of Apple’s Worldwide Developer Conference to accept a custom-designed plaque as thanks for having “come through every single time for us.” Otellini, clearly moved, called working with Apple one of the best things that’s happened in his career.

What the crowd didn’t know at the time is that Jobs was also thanking Otellini for delivering on a favor. Months earlier, Apple had come to Intel looking for a special order: a small, thin chip package – the sort of component you would need to build an uncommonly slender computer. Apple didn’t say exactly what it needed the package for, and Intel engineers at first thought they couldn’t help. “Initially we either said, ‘We don’t have that,’ or ‘We have that on a roadmap 3-4 years from now,’ ” Rattner says.

In fact, Intel soon discovered it had the requested technology close at hand. Years earlier, researchers had dreamed up a similar chip in a tiny package, but the idea had been put on the back burner after PC makers gave it a ho-hum reception. The concept just had to be dusted off. “We had that small chip package pretty much sitting on the shelf,” Rattner recalls. Within a year, Intel had updated it to meet Apple’s needs and delivered it in volume.

What does the future hold for the unlikely partnership? Expect more collaborative efforts like the MacBook Air. Rattner says the two companies are working on more projects that are “equally aggressive” – which probably means there are both tough technology challenges and tough deadlines.

Intel: WiMax doesn’t have to win

2008-06-12T18:37:52Z

Intel has begun building platforms that combine its microprocessors with WiMax wireless technology. Image: Intel

About a year ago, Intel talked about WiMax as if it’s the technology that will wirelessly connect the world’s gadgets for high-speed Internet surfing. After all, that’s why Intel has shepherded the standard along for the past several years, backing it with expensive research and building it into the Centrino 2 mobile platform, code-named Montevina, that it plans to announce this year.

But mention WiMax these days and Intel’s (INTC) likely to wax philosophical. Yes, the company still backs the technology with its products and cash – just last month Intel pumped another $1 billion into Clearwire (CLWR), a struggling company working with Sprint Nextel (S) to build a U.S. WiMax network. But lately alternative high-speed technologies such as Long Term Evolution have gained steam – Nortel (NT) yesterday announced that like AT&T (T) and Verizon (VZ), it’s betting on LTE – and Intel is now talking about WiMax as just one of many great high-speed options.

“There doesn’t have to be one solution to this problem,” Intel Chief Technology Officer Justin Rattner told me on Wednesday. “We have cable and DSL, and we don’t care how you get the bits into your house. We just know that having the bits there drives the consumption of our silicon products.”

Intel sales and marketing chief Sean Maloney last week made similarly neutral statements about the future of wireless. Information Week quoted Maloney saying that WiMax “ought to be harmonized” with LTE, so that customers aren’t confused. Those don’t sound like battle cries from a company fighting to the death for a mobile standard.

While it’s true that any kind of widely available wireless broadband would help Intel sell more chips, a WiMax win would be better for Intel’s business. Why? Since Intel has been working on the technology for so long, it stands to profit if there’s a surge in demand for WiMax-related gear.

After all, that was the point of building WiMax technology into its Montevina platforms. Will Intel execs be happy if we get wireless broadband soon, no matter what it’s called? Sure. But despite the new tone, you can bet they’ll be happier if it’s WiMax.

HP launches rival to MacBook Air

2008-06-10T15:01:01Z

The new Voodoo Envy 133 is .7 inches thin, and has a carbon fiber body strong enough to support a removable battery. Image: HP

A little more than a week ago, Rahul Sood blogged a picture that showed him cutting his birthday cake with a $1,800 MacBook Air laptop.

It’s so damn sharp, he wrote underneath, it did a fine job.

For Apple fans this was blasphemy, something like drinking Kool-Aid from the Holy Grail, and they swiftly voiced their displeasure on the web. Sood is the chief technology officer of Hewlett-Packard’s (HPQ) PC gaming group after all, so his cake-cutting stunt was clearly not a testament to Apple’s (AAPL) design prowess. While Sood claimed that a merry mix of wine, friends and a good cigar had pushed him to it, his closing statement on the offending blog entry suggested a deeper motive:

Ahh well, I wouldn’t be needing this notebook for long anyways … : ) Stay tuned for more …

Voodoo Envy 133Dimensions: .7″ thick. 9.04″ x 12.65″

Weight: 3.373 pounds

Screen: 13.3″ backlit LED

Casing: Carbon fiber, available in various Voodoo Allure paint colors

Connectivity: USB 2.0 (2), Ethernet (in power brick), HDMI, headphone/microphone, e-SATA/USB

Operating systems: Windows Vista, Voodoo IOS (Linux). Includes Lojack recovery software.

Price: Starting at $2,099

This amounted to a mischievous hint that Sood had a new product coming – and now, here it is. Today in Berlin, with Sood on hand, HP is introducing the Voodoo Envy 133, a high-fashion laptop that is HP’s answer to the MacBook Air.

While the new Envy is not as delightfully aerodynamic as the MacBook Air (this one won’t be cutting any cakes), it still cuts quite a figure. When I first saw it during a media preview, I was impressed with its clean lines and its skin made of carbon fiber, a durable material that’s more commonly seen on racecars than PCs. Sood, who founded Voodoo PC and sold it to HP two years ago, has a reputation for building high-performance computers, so the construction made perfect sense.

The laptop is part of an update to HP’s overall PC lineup that includes 17 new laptops, a new touch-screen desktop, and a flat-panel monitor that displays billions of colors. Voodoo’s computers are also getting a major update in the launch; besides the Envy laptop, there’s a new Omen desktop and more prominent display of HP gaming PCs labeled as having “Voodoo DNA.”

The new products, particularly the Envy laptop (starting at $2,099), mark a shift in how HP is approaching the PC market. Voodoo was best known for catering to the flashy tastes of gamers, but HP now wants to position it as a luxury brand within the company – something for the Lexus and Bentley crowd. “It’s going to be all about a customer who’s more demanding about technology and personalization – they want something different,” Sood says. “It’s going to be where arts and technology fuse together.”

Why would HP try to sell pretty laptops for more than $2,000 at a time like this? Because people are still willing to pay for the wow factor. Just look at Apple’s online store; the cheapest laptop Apple offers is the $1,099 MacBook, but the top seller is the $1,799 MacBook Air. The MacBook is practical, with an equal-sized screen, a faster processor and a bigger hard drive than the Air. (Plus the MacBook has a DVD drive, which the Air lacks.) Still, people are scrambling to spend 63 percent more for a less substantial computer that’s thinner and prettier – and that’s great for a PC maker’s profit margins.

HP figures two can play at that game. While the Envy 133 is bulkier than the MacBook Air (it doesn’t have the tapered look and weighs in slightly heavier at 3.37 pounds), it also includes conveniences Apple left out. The Envy has two USB ports, an HDMI port, a removable battery, and a unique feature that lets you plug an Ethernet cable into the power brick and create an instant wireless connection with the laptop. Like the Air, it uses a chip from Intel (INTC).

Most impressive, the Envy also comes preloaded with both Microsoft (MSFT) Windows and a custom flavor of Linux that boots up in less than five seconds to offer a browser, instant messenger and Skype. In the Linux environment, running light tasks, the Envy gets nearly 3 hours of battery life, Sood told me; in Vista, more like 2.5 hours. (This is less than the MacBook Air gets, but I give HP credit for having a removable battery.)

So should Apple worry? Probably not yet. The Envy has yet to prove it can attract the same crowd as the MacBook Air, and it’s always possible that Voodoo’s fan base will be turned off by the brand’s shift toward luxury buyers rather than gamers. But HP’s move with the Voodoo brand should certainly put rivals such as Dell (DELL), Sony (SNE), Acer, Lenovo and Toshiba on notice: There’s another sharp laptop on the block.

Earlier: HP reaches for the cool factor

What’s still missing from the iPhone

2008-06-09T21:52:29Z

The new 3G iPhone is a great update, but it doesn’t come with enough of a software breakthrough to make it revolutionary. Image: Apple

So there’s a new iPhone. (Yawn.) Big surprise. Any groundbreaking software to run on it?

For me, that was the big question during Steve Jobs’s keynote address at Apple’s (AAPL) Worldwide Developer Conference, and it’s still unanswered. Sure, Apple and its partners made a flurry of interesting announcements, including the 3G iPhone everyone expected. Several of the announcements even involved slick-looking new iPhone software. But was any of it groundbreaking for a mainstream audience? Hardly.

I’ll admit that I’m holding Jobs to a high standard. Under his leadership Apple has been on a tear, mastering the market for music players, gaining share in PCs, and shaking up the cell phone industry. Jobs has led the company so effectively that right now the iPhone, the linchpin of Apple’s growth strategy, faces a critical test: Will it redefine the mobile industry, giving Apple the sort of clout in phones that Microsoft (MSFT) has in PCs? Or will it simply occupy a high-fashion niche, and leave the real profit making to others?

The difference between a dominant or dwindling iPhone will be software. Or more plainly, the ability of Apple and other software companies to make the iPhone do amazing things that couldn’t be done before. Jobs & Co. have achieved this feat at least twice in the past. The first time, with the original Mac, Apple joined with Adobe Systems (ADBE) and others to usher in the era of desktop publishing, allowing people to create and print professional-looking documents with a computer. The second time, with the iPod and iTunes, Apple worked with the recording industry to offer the first intuitive system for acquiring, organizing, and listening to music.

The iPhone hasn’t yet proven it has the same spunk. It does a beautiful job surfing the Web, but that’s a cool feature, not a killer app. It’s handy for corporate e-mail and address books, but Research in Motion’s (RIMM) Blackberry got there first. It’s got multimedia features, but so does my iPod.

For this device to truly fulfill its potential, I believe it will have to offer something totally new – something like on-board photo and video editing, or a videoconferencing app, or (most likely) something too cool for me to dream up. By reaching out to software developers, Apple has put itself and its partners in position to achieve that kind of breakthrough eventually – but I didn’t see it this morning.

Yeah, OK, 3G iPhone. What else?

2008-06-09T19:12:17Z

Attendees wait for the beginning of the Steve Jobs keynote. Photo: Jon Fortt

Since everyone was expecting the 3G iPhone that Steve Jobs announced Monday in San Francisco, I was officially less interested in that than in everything else. I’m more curious about other stuff – like, what’s next for OS X? Will Apple (AAPL) unveil a new suite of software for the iPod Touch and iPhone? And have third-party developers come up with anything thrilling?

Below, a look at the major announcements, and which other companies are affected.

1. iPhone 2.0 software. Steve Jobs is going straight for the BlackBerry’s jugular. He kicked off his keynote by saying 35 percent of the Fortune 500 have been working with early versions of the iPhone 2.0 software, which potentially cuts into the BlackBerry’s customer base. To drive the point home, Jobs showed a video of IT managers testifying to the iPhone’s greatness. One recurring theme: The iPhone does a good job with Microsoft (MSFT) Exchange and Sharepoint. In fact, it was so heavy on the compatibility message that could have been a Microsoft promotional video. Loving it: Microsoft. Hating it: Research in Motion (RIMM), Palm (PALM), Nokia (NOK), Motorola (MOT).

2. Developers. Apple introduced a “push notification” service for developers that allows them to remotely notify users when a piece of software is ready with an update. There were also a lot of demos. Ready? SEGA showed off a slick version of the goofy Super Monkey Ball game, eBay (EBAY) showed a nimble new auction app, Loopt showed a friend-finder service, TypePad showed a fast blogging app, Associated Press showed a new site thick with photos and video, Pangea Software showed two graphics-rich games, Cow Music showed a funky music-making app, MLB.com showed live video highlights, Modality showed an interactive map of the anatomy, MIMvista showed a 3D view into the body, and Digital Legends Entertainment showed a stunning 3D fighting game. The key to each jaw-dropping demo was the multi-touch interface. Loving it: Every software developer. Hating it: Every iPhone competitor, especially Microsoft, Symbian, Google (GOOG) and Palm.

3. Productivity. A few new features for workers: Search contacts, bulk delete and move e-mail messages; iWork compatibility; Word, Excel and PowerPoint compatibility, multi-language support, and custom app distribution options for enterprise and for education. Loving it: Business users, educators, Microsoft. Hating it: No one, really.

4. mobileMe. Exchange “for the rest of us,” Apple calls it; Phil Schiller casually slips and calls Microsoft’s ActiveSync product “ActiveStink.” Apple’s mobileMe keeps all of your address, calendar and mail products in sync, on Macs and PCs (including Outlook compatibility). It also has a slick web-based e-mail and contacts interface. Only problem: It’s $99 per year. There’s a 60-day free trial, but no ongoing free version to get people hooked. Loving it: People who used the .Mac service before. Hating it: The masses who use free web 2.0 apps.

And of course, there was a 3G iPhone announced. But to me, the other stuff matters just as much.

Intel faces volatile flash memory market

2008-06-09T13:49:01Z

Late last year, Intel got blindsided by the herky-jerky flash memory market. Prices plunged so fast that the tech giant couldn’t make money. The unit’s losses hurt Intel’s (INTC) overall margins, prompting CEO Paul Otellini to promise investors he wouldn’t allow storage chips to continue dragging down the company’s profits. The implication: If this rollercoaster gets too scary, we’re getting out of the flash business.

Well, get your barf bags ready, Intel. It looks like things will get scary again.

Samsung Semiconductor President Jon Kang says he doesn’t expect flash pricing to calm down. Image: Samsung

At least, that’s the strong impression I got last week from Jon Kang, president of Samsung Semiconductor. And he would know. Samsung is the world’s top producer of flash storage, responsible for about 40 percent of all flash sales. That makes Kang more than a passive observer of the flash market’s ups and downs; if prices drop, it’s probably because Samsung (or its nearest rival Toshiba) cranked up production, pumping up the market’s supply of flash.

“I don’t think Intel will want to be in it too long, because they’re not used to this volatile type of business,” he told me during a chat at the Asian History Museum in San Francisco. “I think it definitely will stay volatile.”

There’s good reason for Samsung and its rivals to make a lot of flash chips - the tech industry is hungry for the stuff. From Apple’s (AAPL) iPods and iPhones to new laptops from Hewlett-Packard (HPQ) and Dell (DELL), the major players are increasingly using flash instead of hard drives to store digital information in hot new products. Why? Because unlike hard drives, flash chips are small and have no moving parts, making them an ideal fit for sleek, durable mobile devices.

The main factor keeping flash drives from replacing hard drives more quickly is price. Today you’ll pay several times more for a gigabyte of flash storage. That’s why Samsung, Toshiba and others are spending billions of dollars a year to build out more sophisticated manufacturing centers that pack more, cheaper storage onto the same sized chips. By churning out memory and lowering prices, they’re not only opening up new markets for flash, but also daring smaller players like Intel to take losses as they try to keep up.

Kang is politic about the economics here – it would be unseemly to suggest that his company has much influence over pricing. But at the same time, he looks very relaxed as he recalls how prices dropped by half at the end of 2007, and how they’ll probably drop again late this year. “You’ve got the Intel guys like deer in the headlights – ‘What happened?’ ” he says, smiling. “The reason we feel very good about it is, even though the market today is not very good, if it’s a supply-driven thing, the biggest guy with the largest capacity will eventually win.”

In other words, when prices drop, it hurts top flash producer Samsung less than its foes.

Intel knows this dynamic well. In the market for PC microprocessors, it’s a big player running over smaller rivals. The flash market is a different ride, though – so we’ll see how long Intel executives (and investors) are willing to stay on Samsung’s rollercoaster.

Why Moto won’t get its man

2008-06-05T15:18:07Z

Todd Bradley heads HP’s $36 billion PC group, and Motorola has courted him to run its cell phone division. Image: HP

If anyone can rescue Motorola’s phone business, it’s Hewlett-Packard’s Todd Bradley. The question is why he’d want to.

Sure, Bradley likes fixer-uppers like this one. During stints at Gateway, Palm (PALM) and Hewlett-Packard (HPQ), he has burnished his high-tech management cred by building good products for less money than the competition. He’s not a visionary who dreams up flashy stuff – he’s a hard-hat guy who gets things done on time and under budget.

That makes Bradley, currently the executive vice president of HP’s PC group, an ideal choice to revive the flailing phone business that Motorola plans to spin off. (The Wall Street Journal reported that Bradley is Motorola’s top pick for mobile CEO.) Moto’s disjointed leadership team and mangled manufacturing process are the kinds of challenges Bradley has tackled before. At the helm of Palm, Bradley ran such a tight ship that he beat Handspring in the handheld computer business and forced Sony (SNE) to drop out. At HP he has done much of the same, cutting costs and boosting profits so that the creative teams have room to try new things.

But I still can’t imagine Bradley really wants this Motorola (MOT) job. After joining HP in early 2005 he spent months shaking up the leadership team, weeding out supply chain problems and simplifying laptop designs so HP can respond more quickly to changes in customer tastes. When I chatted with him a month ago about his progress at HP, Bradley didn’t sound like someone whose work was done. He sounded like a mechanic eager to see how much faster his tuned up car can go.

To make that happen, Bradley’s putting more energy into HP’s distribution partnerships, amping up design to take on Apple (AAPL), and getting HP PCs in front of new customers all over the world. “Three years ago we clearly didn’t have a marketing capability. Clearly our design was not where it should be,” he told me, noting that the company has made great strides in those areas. “Now we’re looking at our market coverage. We’ve expanded from 20 cities in China to 700. You’ve got Vietnam. But you’ve also got 20 percent of the United States not covered, and by any stretch of the imagination that’s a lot of people.”

Sure, if Bradley were to take the Motorola job and ace it, he might go down among the finest tech turnaround artists ever. But he would also have to leave a resurgent HP and deal with Moto’s conflicted board of directors, its pitchfork-wielding shareholders, and the headaches involved in the handset division spin-off.

That’s a lot of politics and bureaucracy for a guy who thrives on down-and-dirty management, and hates shaking hands and making speeches. And that’s why, for my money, Todd Bradley’s not going anywhere.