) is one of the oldest and largest companies in Silicon Valley. But the company faces a serious downturn in earnings, as the PC revolution starts to wane and technology spending slows along with the economy. CEO Carly Fiorina, who took the job in 2000, now must confront the daunting task of retooling HP into a fleeter, sleeker competitor.
What to do? One key element in HP's makeover is the adoption of Linux, the free, open-source operating system (OS) revered by computer programmers and reviled by companies like Microsoft, who have long made most of their money selling proprietary software. This week, HP will announce a plan to unveil Linux versions of key network operations programs commonly used by large corporations to oversee multiple networks. These programs were long considered too complex and mission-critical to be run on Linux. Not anymore. HP's romance with Linux looks like it's turning into a long-term commitment.
For two decades, HP has been married to two computer operating systems. Its desktops, laptops, and entry-level servers run Microsoft's (MSFT
) Windows. Its high-end servers use HP's proprietary version of Unix, called HPUX. These were the software foundations upon which the HP franchise was built.
QUICK CHANGE. But shortly after taking the helm, Fiorina declared a major strategic shift by adopting Linux as the third native operating system for HP supports. It was a tremendous leap of faith. Prior to the announcement, most corporate technologists considered Linux the plaything of computer geeks and college students, not an OS that could host applications for huge corporate networks. "Linux in many ways today is similar to how pervasive the Internet was in the enterprise just a few years ago," says Martin Fink, general manager of HP's Linux Systems Operation. "Today, no technology company could survive without extensive Internet experience. That will be true in a few years when it comes to Linux."
Such pronouncements have been heard from Linux devotees before, mostly coming from the academic community or the world of independent computer programmers. But to hear it from a top exec at one of the largest suppliers of hardware to Corporate America is almost revolutionary.
To be sure, HP isn't the first company to discover the beauty of Linux -- IBM
has been using it for more than a year. But it's still a surprise to see the Linux transformation occur so quickly at HP, considering its long and friendly relationship with Microsoft, the company that stands to lose the most from Linux' success. Also, HP engineers and managers have a history of jealously guarding the proprietary source code of HPUX, which they viewed as a significant revenue generator.
SERVICE CALLS. But most HPUX licenses come free with the servers on which the OS is loaded. Even in the case of very high-end servers, where a fee is charged for HPUX, most of HP's revenue comes from services provided by HP consultants, not from the license sale. Such revenue can be earned by servicing Linux machines also, and that's the heart of HP's Linux strategy.
Still, why should a profit-driven company want to mess around with a free computer program? Startups such as LinuxCare, Red Hat (RHAT
), and VA Linux (LNUX
) have convincing answers to that question. Each of those companies, while still struggling to get into the black, has been able to increase revenue by selling professional services to companies that want to use the OS. For instance, when Burlington Coat Factory (BCF
) wanted to build a new inventory system using Linux, it chose Red Hat's version of the program. While Red Hat didn't charge them for the software, it did help the company set up and customize a Linux network for its needs, making a heap of service revenue in the process.
IBM, and now HP, saw that this business model was viable and jumped on the bandwagon. Although HP derives a tiny proportion of its revenues from Linux services right now (it launched its Linux division in mid-2000), the company expects that to change in coming years. HP won't release revenue projections or market-share targets, and in truth, it's a hard call to make. HP makes money by selling hardware, not software. Most of the servers it sells can run on either Linux or HPUX, so it's not easy to differentiate between Linux and HPUX sales. But company execs think they see the future. "HP is bringing our enterprise abilities to Linux as it scales to more critical commercial applications," says Mike Balma, director of marketing for HP's Linux division. "As the market develops, HP will be there."
CONVERTING THE CRITICS. It probably won't be alone. In addition to IBM, HP has to compete with Red Hat and VA Linux, as well as other hardware companies like Gateway (GTW
) and Dell (DELL
), both of which are also starting to invest heavily in Linux projects.
HP took its initial step into the Linux world by working closely with its resellers to spread the Linux gospel. For instance, the company is in a tight partnership with MSC Software (MNS
), which builds computer systems -- usually combining its own software with HP hardware -- that model manufacturing processes or new products using multiple clusters of computers to simulate the power of a supercomputer. While MSC endorses no one operating system, it finds Linux to work extremely well. "Linux offers stability, reliability, and performance at an attractive price," says Greg Sikes, a general manager of MSC's Linux division. "We can often build a system that's five times as fast at half the price using Linux."
HP is also hard at work creating Linux versions of other important pieces of software. One key player in that process is Bruce Perens. Famed in Linux circles as being one of OS's earliest and staunchest advocates, as well as a brilliant programmer, Perens was long opposed to corporate involvement in the propagation of Linux. That was true, until corporations like HP started changing their tune and agreed to keep Linux-based software open-source, says Perens, who is now a HP employee. "Here's a company that decided to reinvent itself," he says. "My job description is to 'challenge HP management,' and they welcome that."
LINUX DRIVERS. Perens made his first breakthrough in HP's printer division. The company wanted to release new Linux versions of its printer drivers (small programs that allow printers and other devices to communicate with the computer). "Our first impulse was to write proprietary drivers and release them as quickly as possible," says Balma. "But Bruce demanded that we release them as open-source programs. It took more time, because the code had to be cleaner, but the Linux community really appreciated that." Today, almost every HP laser and ink-jet printer in production includes a Linux driver.
To be sure, printer drivers are small change when it comes to corporate computing. But now that HP has decided to use Linux versions of key network operations programs, momentum is building. Clearly, HP believes the Linux age is about to dawn. By Sam Jaffe in New York