HP Collaboration With Intel On An IA-64 Architecture Parallel Processing Chips
Over the years HP became one of the major players in the hardware and software arena, acquiring companies and merging existing portfolios helmed the growth. HP based their products on proprietary RISC microprocessors and UNIX operating system. RISC chips offered higher performance advantage over CISC microprocessors because of their limited instruction set. HP was able to leverage the design of RISC microprocessors and UNIX system in unique way to extract maximum performance.
HP manufactured and designed their own RISC microprocessors with the view that this will help them in controlling the quality as well as extracting the maximum performance from them. The cost of manufacturing state-of-the-art RISC microprocessors was becoming exorbitantly high around 3.8 billion dollars. HP needed to control their manufacturing practices because some of their processing requirements didn’t follow any norms due to their unique design. The RISC chips were manufactured in lesser quantity when compared with other chip manufacturers like Intel. The difference between the production was substantial, HP produced in hundreds of thousands whereas Intel produced in millions of units. This led to scalability issues which could scupper the growth of HP.
The emergence of WINTEL had an interesting effect on the market. HP along with other companies had a big share of the market but WINTEL was the dark horse in the race. WINTEL was slowly encroaching their territory, it started capturing huge chunk of the lower end market. HP realized that if they don’t innovate they will be engulfed by the perfect storm i.e. WINTEL. The growth rate of the UNIX based systems was expected to slow down as evident by the compound annual growth rate of 5% from period of 1997-2001. Many people in HP believed that RISC architecture has reached its peak in terms of performance. This coupled with economics associated with in-house manufacturing of RISC microprocessors, rapidly increasing cost compared with the diminishing RISC-UNIX units sold and increase in the price due to lesser units sold served as the impetus for HP to change its strategy and use its resources in the best possible way. The collaboration between HP and Intel made total sense as both the companies could count on the strengths of each other; HP being pioneers in the design and Intel being leader in chip manufacturing. This would help HP in solving their scalability issue.
IA-64 architecture would be a game changer for both companies. It would not only stir up the market but open more revenue channels for HP and Intel. IA-64 not increased efficiency and paved the way for both companies to target high end computer processing segment through parallel processing. IA-64 supported both UNIX and WINTEL. This helped in commercialization of the product and generate a new customer base for the companies as the new chip would be available in the open market.
In my assumption, HP was moving in the right direction. In this competitive world it’s all about being unique and coming up with innovations different from your rivals. HP started working towards the IA-64 processors while its rivals were still on the older architecture. HP moved towards the product and architectural innovation when moving ahead with its IA-64 architecture to get a leg up on its rivals. This helped HP and Intel to achieve competence enhancing product. In the S-curve for RISC microprocessors HP realized that it soon will reach the limit of technology with these microprocessors. They needed another design to change the game and continue to be successful in the market. Time and technology doesn’t stop for anyone. HP decided early-on before the RISC chips reached its technology limit to start innovating. HP would risk stagnating their growth if they don’t keep innovating.
The collaboration between HP and Intel played to the strengths of both the companies. Chip design was HP’s strongest suite and manufacturing high quality chips at larger scale was Intel’s. This was not only cost effective but helped both companies use their resources in the correct way to achieve innovation. HP was able to invest and disperse the high manufacturing cost in better design solutions and marketing to tap into the new high end computer system. The assumption to ride the RISC S-curve while implementing and switching to new IA-64 architecture S-curve would lead to success in the long run as it will be the technology of the coming years. HP was one of the leading player in the RISC microprocessor and UNIX operating system products. Following the announcement of the plan by HP to collaborate with Intel on a new IA-64 architecture parallel processing chips. This generated a lot of buzz in the market and signaled the intent of HP to lead the peloton in terms of innovation and design. The news was not meant with a lot of fanfare by their rivals and many people in the industry.
Fear uncertainty and doubt FUD amongst the industry leaders and customers over whether HP was abandoning their HP-UNIX operating system in favor of Merced. Their rival Sun leveraged this confusion and strode forward to present themselves as the best vendor of UNIX based systems to customers as well as independent software companies. Sun capitalized, gained momentum and trust of independent software vendors with their position in the internet market space and strong focus on their UNIX systems.
The proposed switch to the new technology sowed the seeds of doubt and mistrust not only with customers but with small scale software vendors. Many people in the industry felt a lack of explanation in the direction that HP was heading. All the news surrounding the switch to IA-64 architecture didn’t help the independent software vendors. Many people believed or suspected that HP has abandoned HP-UX operating system and their HP-PA architecture. All these talks stirred the pot, independent software vendors were concerned about them investing time, resources and money for their programs to run on the current or updated versions of HP-UX operating system. The concerns arose from the fact that HP is moving towards the new architecture and they might abandon their HP-UX efforts. The other concerns were whether their current programs would work seamlessly in the new proposed architecture. This predicament played into the hands of Sun Microsystems and they aligned themselves with the independent software vendors as pioneers in the UNIX based systems.
HP and other companies used their proprietary versions of UNIX. This resulted in a lot of overhead for independent software companies. During this time different UNIX manufacturers were customizing UNIX to meet their design. The independent software vendors had to rewrite different programs for them to work on these different UNIX versions.
By 1998 the earnings of HP fell down from last year and their rival Sun Microsystem encroached on their revenue and took a huge chunk of the market share. This led to loss of sales but also customer base for HP. By this time most of the second tier companies aligned with the top tier companies mainly Sun, as they were not able to make a dent in the market nor get the independent software vendors to jump on their wagon. This alignment helped both the independent software vendors as well as the second tier companies. The second tier companies were able to access the latest advancement in the UNIX technology and the independent software vendors had a consolidated set of customers. This move saved money and resources for the independent software vendors as they wouldn’t have to write their programs to run of different UNIX systems.
The uncertainty in the market caused by the shift from HP towards the new architecture helped their rivals mainly Sun Microsystems in being to capture large chunks of the market as well as convincing the tier 2 companies to join forces. Sun Microsystem turned to FUD to turn the tables. Fear, uncertainty and doubt helped Sun increase its market share, revenue and diminish the revenue of HP. HP will benefit the most from the successful launch of its IA-64 in the market. The successful launch will help HP move to another market. Proficiency and efficiency of IA-64 will enable HP to tap into the high end market. The Merced chip was able to support both the UNIX and Windows NT due to the design prowess of HP. Another asset for HP was the selling of Merced chips in the open market. This will help HP in building a new customer base via commercialization of the new IA-64 architecture chips. If more users/customers start using this architecture then it will lead to bigger market for HP to explore. This would help HP in becoming the market leader for IA-64 architecture. In coming years HP can continue the cycle of innovation and enhancement with their current architecture while the rivals play catch-up and move to this architecture. The strong design of its compiler led to significant performance and speed enhancements in the IA-64 architecture. Compilers are vital to any program to run on any operating system. High execution speed led to higher performance for the hardware and operating system, due to efficiency in design of the compilers. Parallel processing and translation of software programs into machine language played an important role to benefit customers. The instruction set was not sequentially dependent nor was it dependent on any particular resources. With HP having a superior hardware in the market it led to many independent software vendors to take advantage of its EPIC capabilities.
The strong compiler design led to more efficient computation time and success of this architecture meant HP will be able to take a chunk of the high end computing systems. The faster architecture will help HP in expanding its horizon and tap into the market of mainframes, servers which require higher computational abilities.
The companies who will not benefit from the success of IA-64 architecture will be companies still employing older architecture in processing chips and basing most or all of their resources in the UNIX operating systems. Sun Microsystems a rival of HP would not benefit because in the long run as the share of UNIX run devices would go down and companies would move to the parallel processing capabilities of the IA-64 architecture. They will be playing catch up in the innovation sphere of the IA-64 architecture. Sun along with tier 2 companies who had invested and joined Sun’s solaris system. Another player in the sphere who could suffer the consequences will be independent software vendors who had developed and maintained their programs to suit the Solaris UNIX system and HP-UNIX system. It could lead to additional expense for ISV in case their current programs don’t work with the new parallel processing.
If the companies have not moved towards the new technological change or foreseen the coming change in the market. They would lose out on the new emerging market and revenues. The emergence of ARM with its new chip would have changed the market landscape. It’s similar to how WINTEL started at the lower end of the spectrum but its continuous rise led to them engulfing the mid-tier market. They redefined the market, in the same way with the success of IA-64 architecture for HP, it was able to transform itself and create another new market for themselves. Unlike other rivals who didn’t innovate were left behind and their market share would have been encroached by the upcoming lower end technologies and companies.
Jim Davis had a big strategic decision on the direction of ESG. He had to consider from the following situations.
- To continue building on both RISC and Merced platforms.
- To discontinue RISC, UNIX and focus on Merced.
- To focus solely on RISC and UNIX.
- To focus on Merced as a platform or use Merced as a base and focus their energies on making McKinley as their platform of choice.
- To join Sun’s solaris camp and focus on developing Merced.
The recommendation should be a combination of these points as explained below.
- To join Sun’s solaris camp and focus on developing Merced.
- To focus on Merced as a platform first.
- To focus on McKinley at the stated release while incorporating and developing flaws from Merced.
In the view of diminishing returns/revenue in previous quarters, there had to be a change that would impact not only today but also continue to generate much larger revenues in the future and coming quarters. Taking all this into consideration I would suggest Mr. Davis to propose a strategy that would have HP join Sun’s Solaris camp and continue being a player in the RISC-UNIX domain and focus their limited resources on the development of Merced on a tighter schedule. This is a win - win situation for HP. This strategy will help HP in generating steady revenue from being part of the RISC-UNIX market, the independent software vendors would have no problem in supporting and maintaining their programs in this migration. HP can focus on Merced and utilize the resources efficiently. This would signal the correct direction in which the company should move. Merced with new IA-64 architecture would be a game changer. Introduction of Merced will create a big change in the market. The technology will move towards parallel processing in the coming years. HP being a starter in this technology will help them in creating a new customer base in the higher end market while still serving their customers via Sun’s Solaris.
The release of Merced will signal technological strategy steps HP is taking towards innovation. This will cause a disruption in the market and signal a shift towards parallel processing. The significance of the technology will attract more customer base for HP. From the learning curve we can identify that since parallel processing is a compelling technology and the more it is used the more efficient and effective it will become. This is where McKinley comes into picture. HP can leverage its learning from Merced and implement the changes required for McKinley to succeed. McKinley is scheduled to release a year after the release of Merced. This time gap will help in the iteration development and innovation of McKinley. It will give time to HP to perfect the performance or other issues arising in Merced. The release of Merced would help HP to tap into the new high end market as well as the user base known as early innovators. With ARM releasing new technology in terms of chip design in the lower end market. It signaled to HP that it can become a disruptive force in the market. ARM chips were slowly coming up the lower end market. The competitive lower pricing of ARM helped create a niche market for ARM. As HP had seen this trend before with WINTEL and how they rose to take a bigger chunk of the middle market.
Taking into account all the above consideration its best for Jim to recommend HP to join its UNIX with their rivals Sun Microsystems. This will generate steady revenue for HP and satisfy the shareholders and wall street. The new Merced will help to increase revenue by challenging the current market and the share value will supposedly increase from this decision and create a stability in the market as well as wall street.
