SAP implementation contributed to HP shortfall

Glitches during an SAP AG supply chain rollout hit computer systems vendor Hewlett-Packard Co. hard in its bottom line, and the fallout from the implementation apparently led to the firing 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 five per cent year over year to US$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.

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

n a recent conference call with reporters, 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 fourth-quarter backlog for ESS amounts to about $120 million, but HP said it believed its shipping schedule would be back to normal by the end of August. 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.

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