Hewlett-Packard Widens Gov't Reach

Hewlett-Packard Widens Gov't Reach<@VM>Hewlett-Packard Co.

John Guy

By Jennifer Freer, Staff Writer

Four years after first targeting the U.S. government for added sales, computer manufacturer Hewlett-Packard Co. has formed a public-sector unit to extend its reach into state and local governments and better serve these customers.

HP's new Public Sector Organization, based in Rockville, Md., took shape in May and will be responsible for providing computer products and services to federal, state and local governments along with education customers. Until now, the company has targeted only the federal government since widening its reach in 1996.

"We took a look at the state, local and education segments and felt we were underrepresented, and our market share could be better," said John Guy, general manager of the new unit. "We took the experience from the four years in the federal business and broadened it into a public sector."

HP, based in Palo Alto, Calif., is the No. 3 computer products manufacturer worldwide and is gaining ground in the federal market, said Guy. When the federal organization started four years ago, it quickly snagged 12 percent of the federal market involving services, support, software and hardware, according to HP estimates. The federal government spends about $7.5 billion annually in IT hardware purchases, a company official said.

Guy said the company is working toward its goal of doubling that figure in the federal arena, and now wants to reach that same goal in the state, local and education market. HP does not break down its revenue from its government business, Guy said.

Hewlett-Packard's move to expand its footprint on government is a smart approach, especially in the government area, because there is a strong demand for technology, said Megan Graham-Hackett, director of technology research at S&P Equity Group, an investment research firm in New York. But there also are strong competitors, such as IBM Corp., Gateway Inc. and Compaq Computer Corp., offering the same type of services, "The benefit occurs for HP because companies feel the government market is a much more predictable business and contracts are longer," Graham-Hackett said. "But the negative side is that the bids are usually fierce and very price competitive. So, that is the question ? are HP's costs low enough to compete?"

Along with widening its government scope, HP also is giving customers the option of buying products online directly through HP, as well as buying products through a reseller. This has been an overall part of the company's strategy and is not occurring because of the formation of the new unit, Guy said, but because customers wanted a tighter relationship with the manufacturer.

The direct selling approach is something many vendors are trying to utilize, and is not new, said Graham-Hackett. "You have a lot of vendors offering products, however customers want to buy them."

For example, HP won a contract from the state of New York in May that allows agencies there to buy computer products directly from the company online instead of through a company reseller.

HP customers include all four U.S.
military branches, the State Department, the Justice Department, the Patent and Trademark Office, the Federal Aviation Administration, the Census Bureau, the U.S. Postal Service, and states such as New York, Texas, California and Virginia.

The company sees its strength lying in the large array of products and services it offers its customers, said Alan Lawrence, manager of strategic programs for HP.

For example, HP offers palm-top devices that are being used by the Postal Service to track individual letter carriers. It also provides workstations to the Navy for use in fire control and fire targeting, Lawrence said.

HP also spends significantly on research and development ? 7 percent to 8 percent of overall revenue, a percentage higher than at many companies, according to Lawrence.

In building its government base, HP intends to aid customers who are looking to migrate operating systems as well as use platforms of both the Unix operating system and Microsoft NT, Lawrence said. The company also is targeting e-commerce in the government market over the next year, though he would not elaborate.

Hewlett-Packard Co.

Business: Hewlett-Packard provides computing and imaging solutions and services globally.

Headquarters: Palo Alto, Calif.

CEO and President: Carleton S. Fiorina

Employees in 1999: 84,400

1999 Revenue: $42.4 billion

1999 Net Earnings: $3.5 billion

Ticker: HWP on the New York Stock Exchange

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