1) In summer 1998, what is the position of the Enterprise Server Group (ESG) in its industry? How has it evolved? Why? HP, an international manufacturer of instrumentation, healthcare, computer and communication products, started up with initial investment of only $538 in the year 1939.It grew to more than $43B in sales and $3.1B in net profits in 1997.In 1997, HP formed Enterprise Server Group to focus on enterprise computing. ESG’s products were built based on proprietary RISC microprocessors and UNIX operating systems. ESG produced scalable, high performance computing systems, which were the backbone of corporate information networks, network servers and mainframes. Customers depended on ESG to run their businesses and to Web-enable their IT infrastructures. Around the world, ESG installed more than 1.3 million UNIX systems and in year 1997, while the total market estimated to be worth more than $60B.Since 1993, HP had been the number one position in UNIX server vendor by revenue with its HP-UX product line.
In summer 1998, there was tremendous pressure on Jim Davis, manager of ESG due to the downfall in the revenues and profits. The company had the opportunity to show improved results by strategizing its technology implementation decisions. There was an issue where Davis was to recommend whether HP should continue with the proprietary UNIX based Performance Architecture (PA) based on RISC microprocessor or shift resources to develop workstations and servers based on new chip, code named Merced and IA-64 architecture. In 1994, HP joined with Intel in development of a new 64-bit microprocessor to withstand the market competition and reduce the costs. This announcement appeared to everyone in the market that HP is pulling out of UNIX business and joining with Intel and Microsoft. Sun took advantage of this scenario and gained market momentum with the independent software vendor community, by introducing Solaris. In addition, the situation turned out to be more complex when the Intel’s release of the Merced was delayed, while McKinley, IA-64 microprocessor promised to be twice as fast as Merced in the same IC process, scheduled for its release. At the same time, Davis was also concerned about the new generation simple and inexpensive ARM microprocessors, which has already made significant impact on the market and also has potential to penetrate larger portions of the market. The tremendous change in the technologies and market added complexity to Davis in devising a plan that was acceptable to HP senior management and strengthen company’s position in the high-end market.

2) Why did HP get involved in developing the IA-64 architecture? Analyze the strategy.

HP made a significant position in the enterprise computing with their own proprietary RISC-based computers employed UNIX operating systems. Before Intel and Microsoft with CISC-Windows computers, the market was predominant with the RISC-UNIX computers .With the advent of Intel-Microsoft, two different worlds emerged in the microprocessor based computer industry: RISC-UNIX world and CISC-Windows world. By the mid -1990s, combination of Intel Pentium processors and Windows NT resulted in to ‘WINTEL’ system, which attracted the lower tiers of the enterprise computing market space .Though its performance levels was less compared to RISC-UNIX systems, it captured market share rapidly because of its lower cost. Product modularity has transformed the basis of competition amongst computer makers in markets. Increasing volumes of WINTEL systems at the low end of the workstation/server markets made an impact on RISC chips. The fixed cost of designing chips, building state-of-the -art semiconductor fabrication plants along with the specter of diminishing unit volumes of RISC chips increased the prices of RISC chips rapidly and thus became unattractive. This situation exacerbated RISC-UNIX computers manufacturers to withstand the competition in the market. In addition to the cost of building, software applications development had become more costly because of the RISC/UNIX volume base and the need to port software to each UNIX version. Considering the above factors, HP joined with Intel in development of IA-64 architecture. Merced is the code name for the IA-64 architecture and was designed to perform an Explicitly Parallel Instruction Computing or EPIC. It was designed to bridge between RISC and CISC.HP believed that customers who watched Intel technologies become pervasive in commercial desktops, file and print servers and technical workstations would expect the same to happen in the server market. It also believed that IA-64 would be perceived as the first Intel technology to support enterprise applications.

3) Who will benefit the most from the introduction of the Merced chip in the markets served by ESG? Who will benefit the least? Why?

For HP, introduction of Merced chip made the remarkable strategic turning point in its enterprise computing operations. Merced was able to support both UNIX and Windows NT and it was also a merchant chip, sold on the open market and available to all makers of servers, workstations and PCs. Compilers played a key role in the speed with which an application ran on any piece of hardware and in any operating system. In Merced, because of EPIC, the compiler was responsible for both translating and parceling the programs that could be independently parallel processed. This tremendously increased the speed and performance of the hardware.
Large scale Enterprise Computing servers and Engineering Computing workstations can effectively utilize the high speed and efficient Merced chips and are the ones that gets most benefit from them. In the market, ARM microprocessors which are simple, powerful chip and low energy consuming evolved to be powerful RISC chips. These chips rapidly increasing its processing power while maintaining a very cost-competitive profile. Many handheld computing devices, scanning devices, mobile fax-phones, personal digital assistants, hard disk drives, smart cards, printers were utilizing ARM microprocessors. ARM microprocessor captured most of the low tier computing sectors and offering cost effective and high efficient devices than Merced. Low tier computing sectors are least benefitted with the Merced chip.

4) In summer 1998, what should Jim Davis recommend?

The future of the ESG products was dependent on the Jim Davis recommendations. In fact Today’s decision defines Tomorrow’s choices. In the enterprise computing arena, new product design required parallel development of multiple subsystems with lengthy development times. These subsystems included microprocessor design, system design, firmware, compilers, packaging, which requires many resources. In summer 1998, there were limited resources and HP needed some winners. It is difficult to pursue RISC-UNIX and Merced platforms simultaneously with limited resources. In this situation, it is recommended to concentrate on only single platform. Davis should recommend ESG to use Merced as a development tool and focus on McKinley, as the release of Intel architecture was delayed and McKinley is twice fast as Merced. Davis should not worry about the decision to dis-invest UNIX and PA as Merced was designed to maintain compatibility with Windows operating environment, as well as with HP-UX. To maintain the continuous revenue, HP should join Sun’s Solaris camp as it is becoming de facto standard in UNIX. This way HP can maintain its revenue and bet on future of IA-64 architecture. ARM is not a threat to HP’s enterprise computing, however it has potential for low tier computing servers. Davis should recommend that HP should allocate small amount of resources in researching ARM as Merced is more beneficial to top tier enterprise computing servers/workstations. In this manner, HP can capture all levels of market and gain its position in Enterprise computing marketplaces.