HP vs. Everybody

Illustration by Josue Evilla for TIME
CEO of Hewlett Packard, Mark Hurd.

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Hurd quickly stopped work on product lines like televisions where HP wasn't already either No. 1 or No. 2. Next he consolidated the data centers from which HP conducted its operations, going from 85 to six. Once the financial crisis hit, Hurd slashed salaries across the board, including his own by 20%. "In an environment like this, there's no margin for error and no tolerance for inaction," Hurd wrote in a staff memo last year.

Meanwhile, Hurd has turned strategist. His goal? To integrate HP's operations so fully that its customers could fulfill all their printing, computing, connectivity and tech-service needs in one stop. HP has beefed up its 20,000-strong sales force and targeted its attention on the top 2,000 firms worldwide. The company has just launched a $40 million rebranding campaign, complete with a new tagline: "Let's Do Amazing." "We're entering an era where the primary thing is going to be services," says HP strategy chief Shane Robison. "And we want to be there to provide the necessary infrastructure."

So as other companies were scaling back in the past two years, HP was on the hunt for bargains. Hurd found his first in August 2008, when HP spent $13.9 billion to buy the languishing infotech-consulting giant Electronic Data Systems (EDS), a direct play against high-end-services leader IBM. Then last November, HP announced it would pay $2.7 billion for networking concern 3Com, a means to rile Cisco as well as expand HP's footprint in the rapidly growing China market, where 3Com is strong. About 70% of HP's business is overseas.

Unseating Dell is one thing; usurping IBM or Cisco remains a longer shot. But HP clearly has their attention. After nearly a year of very public infighting, Cisco finally booted HP from its privileged-partner circle in February, cutting off all proprietary information. Speaking on a corporate blog, Cisco exec Keith Goodwin minced few words: "We are taking this action to be transparent to both partners and customers we will compete with HP for future business."

At home, Hurd has had to reconcile his drive for efficiency with HP's legacy of letting the geeks in R&D; roam freely. Innovation, after all, is what tech companies do. And critics note that HP's $17 billion in overall R&D; investment since 2004 has dwindled as a percentage of its growing sales.

To take on this balancing act, Hurd hired research director and former academic Prith Banerjee in 2007. Banerjee undertook a full-scale overhaul of HP Labs, a longtime oasis for HP tinkerers and their outlandish ideas. To his astonishment, Banerjee found his new researchers sprawled across as many as 150 ongoing projects.

"The key change we made was to take our brilliant scientists and sharpen their focus around a much smaller pool of big bets," Banerjee says. Of these 21 projects, he adds, "we set a high bar that every single one must have the potential to [generate] $1 billion plus in revenue for HP."

But are these research priorities the right ones? The much hyped Slate, for example, still has no rollout date. Plus, despite its thirst for expansion, HP has a ways to go in key niches such as smart phones, software and storage. "HP will tell you that it doesn't want to compete with its partners Microsoft, Oracle, SAP," says Forrester Research analyst Frank Gillett. "But software has pretty high margins to simply be left on the table."

Still, HP hasn't shied away from using scale to its advantage, something the company has relied on its partners to achieve. Indeed, HP and Microsoft in January announced a new $250 million pact to sell their hardware, software and services bundled. While the deal itself was not groundbreaking, the notion that Microsoft and HP salespeople will now push one another's products almost exclusively is sure to aggravate the likes of Dell, Cisco and IBM. And maybe that's the new HP way.

Time.com

HP vs. Everybody

The path to growth is blocked by Cisco and IBM. CEO Mark Hurd must now take them on