Hewlett Packard's Merced Decision

Hewlett Packard's Merced Decision

I. Summary:

HP was founded in 1939 in Northern California by Bill Hewlett and David Packard. The company is involved in manufacturing instrumentation, healthcare, computer and communications products. Over years the company has gained a strong reputation for not only its innovative products that made it an industry leader but also for an outstanding corporate culture. In 1997 it had grown to 43B in sales and 3 .1B in net profits.

In 1997 HP launched the Enterprise Systems Group in order to refocus its efforts and resources on high-performance computing systems for corporations. This initiative, in response to increasing competitive pressures is an important milestone in the company’s history for it was intended to address the fact that the company was losing ground as a consequence of a shift from UNIX. Indeed, there was a decrease in sales and revenue by mid-1998. In the meantime, the competitor Sun had gained the market share taking advantage of its focus on UNIX. Sun had even started a campaign that HP was not committed to RISC-UNIX systems.

In fact, in 1994, HP had decided to jointly develop a new 64-bit processor with Intel and a chip, code named Merced was conceived as the first generation of new chip architecture. This step questioned HP’s commitment to UNIX and therefore gave some competitive advantages to Sun who presented itself to customers and independent software vendors, as the vendor of choice for UNIX-based systems.

Now ESG has to come up with timely solutions to face this critical situation. To that end, its General Manager, Jim Davis has to recommend whether HP should continue to allocate a large share of its resources to extending the capability of its proprietary UNIX-based Performance Architecture (PA) or whether HP should dramatically shift resources to develop workstations and servers based on both the new chip, Merced, and its corresponding new architecture, IA-64.

II. Main issues:

HP strongly believed in the competitive advantage, Merced would provide for it is a strategic turning point in its enterprise computing operations. Indeed the company was counting on an in-depth knowledge of and early access to the IA-64 architecture as a competitive advantage. Therefore the switch was imminent.

However the following issues and pressures that needed to be timely addressed made the dilemma even more complex:

1. When the changeover should take place! The IA-64 architecture that would support the new chip was being developed with Intel and the date of launch of the workstations and servers based on the new chip depended on the launch time recommended by this partner.

2. A second-generation IA-64 microprocessor around the corner: McKinley is scheduled for its release while that of Merced