SAP implementation contributed to HP shortfall

Three HP executives were fired today after HP's Q3 earnings were posted

Glitches during an SAP AG supply chain rollout hit computer systems vendor Hewlett-Packard Co. hard in its bottom line (see story), and the fallout from the troubled implementation apparently led to the firing today of three HP executives.

While delivering the company's financial results for the quarter, HP officials reported that the Enterprise Servers and Storage (ESS) group saw revenue shrink 5% year over year to $3.4 billion -- in large part due to the troubled software implementation. In a statement, HP explained that among other factors such as aggressive discounting, a U.S.-based "migration to a new order processing and supply chain system was more disruptive than planned."

"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage," HP CEO and Chairman Carly Fiorina said in the statement. "We therefore are making immediate management changes."

Fiorina didn't specify what those changes were. But the company later in the day announced that three major sales executives, including former server group head Peter Blackmore, had been fired in a management shake-up following the disappointing quarter in the company's server division. Blackmore was executive vice president of the Customer Solutions Group (CSG), which was formed last December to manage direct sales to enterprise and public-sector customers worldwide

Fiorina announced the changes in an e-mail first sent to HP's employees, then released to the media. "We thank Peter, Jim and Kasper for their years of service and dedication," she wrote.

An HP spokeswoman confirmed this afternoon that the problematic migration was based around SAP software, but she was unable to immediately provide additional details.

In a conference call with reporters earlier in the day, Fiorina said the problems cost the ESS group about $400 million in revenue and $275 million in operating profit.

Elaborating in that call on the issues involved, she said, "We executed poorly on the migration." While the problems primarily hit HP's Industry Standard Server business, they also affected the Business Critical and Storage businesses. Although the company worked to ensure product availability, HP still lost sales and was forced to fulfill direct orders through channel partners and expedite other orders via air shipments. Those moves cut into the company's gross margins.

After discussing the problems, Fiorina ultimately struck an optimistic note, saying, "We believe these issues are largely behind us."

The company said Blackmore will be replaced by Mike Winkler, currently executive vice president and chief marketing officer. Winkler will keep those responsibilities in his new role. Jim Milton, CSG senior vice president and managing director of the Americas region, and Kasper Rorsted, CSG senior vice president and managing director for the Europe, Middle East and Africa (EMEA) region, were also dismissed. Milton will be replaced by Jack Novia, senior vice president and general manager of HP's Technology Solutions Group. Rorsted's replacement is Bernard Meric, senior vice president of HP's Imaging and Printing Group in EMEA.

The fourth-quarter backlog for ESS amounts to about $120 million, but HP believes its shipping schedule will be back to normal by the end of the month. Fiorina also predicted the group would be profitable before the end of the fourth quarter.

HP is a close partner with SAP and offers specialized consulting services around SAP's supply chain and ERP software.

SAP Americas Inc. spokesman William Wohl said the two companies have a "strong and productive relationship, first as a customer and as a strategic partner. The relationship continues to expand even today, as teams talk about deepening that customer relationship.

"We can't talk specifically about what's happening inside HP," Wohl said, but he indicated that in HP's statements, no blame for the problems had been attributed to SAP's software.

Tom Krazit and Peter Sayer of the IDG News Service contributed to this report.

Copyright © 2004 IDG Communications, Inc.

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