Category Archives: Offshoring

Fear of a Converged Data Center

In a relatively short piece today, Michael Vizard has managed to cover a lot of ground. He deserves plaudits for his concision.

Quoting Ashish Nadkarni, a practice lead for Glasshouse Technologies, Vizard’s salient point is that while vendors, notably Cisco and HP, are pushing data-center convergence with fiery ardor, enterprises have not responded with reciprocal fervor.

Resistance is Manifold

The resistance to data-center convergence is manifold. CFOs are wary of anything resembling forklift upgrades accompanied by substantial capital outlays. Meanwhile, CTOs and CIOs are leery of stumbling into vendors’ trapping pits, drawn by the promise of long-term cost savings into a dungeon of proprietary servitude.

Last, and definitely not least, there is cultural and political resistance to sweeping change within IT departments. This makes perfect sense. Any student of history will know that revolutions displace and supplant power structures. The status quo gets pushed aside.

If we think about data-center convergence, we find that many potential enterprise-IT interests are threatened by its advance. As Vizard has mentioned previously, IT departments long have had their specialists. They are staffed by high priests of servers, viscounts of storage, lords of networking, and a smattering of application wizards.

Kumbaya Falls on Deaf Ears

By its very nature, data-center convergence entails that all these domain masters work in concert rather than in isolation. That scenario has theoretical appeal, and many salutary benefits could result from such IT kumbaya and common cause.

However, human beings — particularly in a realm where their positions are subject to offshoring and where job security has faded into a bitter, mocking memory– can be forgiven for eschewing collective idealism in favor of realpolitik calculations of personal survival. In their minds, questions abound.

If the data center is converged, what happens to the specialists? Who benefits, who wins and loses, who emerges from the fray with a prosperous career path and who becomes a dead man walking? These are uncomfortable questions, I know. But you can be sure many people are asking them, if only to themselves.

Answers Needed

An integrated, unified data center, with across-the-board automation and single-console manageability, has its charms — some of which are undeniable — but not necessarily to the specialists who inhabit today’s enterprise data center.

Cloud computing, whether of the private or public variety, faces many of the same issues, though the public option addresses the CFO’s concern regarding capital expenditures. Then again, cloud computing is challenged by the same cultural and political issues discussed above, and by other inhibitors, such as nagging questions about security and compliance.

I know these issues have been discussed before, here and elsewhere, such as by Lori MacVittie at F5’s DevCentral. Vendors, especially executives ensconced in boardrooms eating catered lunches, tend to overlook these considerations. Their salespeople, though, need cogent answers — and they had better be the right ones.

Why ODM Evolution Puts HP and Dell at Risk

The mounting suicides at Foxconn have put that company squarely in the media spotlight, and not in a good way. Those deaths are human tragedies, and one can only hope that the factors that contributed to them will be identified and addressed so that similar incidents can be prevented.

As the vast size of Foxconn’s manufacturing plants and campuses attest, contract manufacturing has grown into an enormous business, one that continues to evolve far beyond its humble origins. In the past, contract manufacturers built or assembled finished products on a third-party basis for brand-name consumer-electronics companies. In recent years, however, their mandate has expanded.

At first, the business bifurcated between those delivering outsourced electronics manufacturing services (EMS) and those categorized as original design manufacturers (ODMs). As the names suggest, the former restricted itself to providing traditional contract manufacturing whereas the latter offered design and development as well as manufacturing services.

Until  recently, as Joseph Wei wrote last year, Foxconn, Flextronics, Jabil, Sanmina and Celestica were classified  as EMS vendors, while companies such as Compal, Quanta, Wistron, Pegatron (ASUSTek),  and Inventec were deemed ODM vendors. Increasingly, though, the distinction between the two classifications has blurred.

The aforementioned companies are extending and expanding their capabilities. Acer founder Stan Shih has noted that bare-bones EMS companies eventually will disappear or transition into what he called design manufacturing services (DMS). That’s a transformation Foxconn and others are undergoing, strengthening their R&D and design services to offer more value to consumer-brand clientele.  In adding design and development to their services portfolio, companies formerly in the EMS business mitigate distinctions between themselves and their ODM counterparts.

Although many of these firms originated in Taiwan, nearly all have Chinese operations, which are growing quickly. Like China itself, these companies are eager to ascend the value chain. Cut-price manufacturing of consumer electronics has been a good business for them, but the margins are wafer thin and the competition is fierce. (Then, of course, there are the dispiriting and sordid issues relating to sagging employee morale.) The more value a company can offer its consumer-brand clients, the more margin and profit it can make.

Now let’s turn this around, and look at it from the perspective of shareholders in the brand-name consumer-electronics companies availing themselves of the services of Foxconn, Wistron, and Quanta. For a Dell or an HP, the obvious appeal of doing business with a DMS vendor is that it reduces your development and engineering costs, especially as you outsource a greater proportion of design and development to a third party.

As that happens, however — at least in PCs, netbooks, tablets, and even smartphones — the value of the brand-name consumer-electronics firm increasingly inheres in the commercial appeal of the brand. But in little else. If HP or Dell ceases to design and develop many of its products, what is its value in the marketplace? Moreover, what is its competitive differentiation or barrier to competitive entry? Such companies, at least in these particular markets, are only as strong as their brands.

After all, a competitor can easily contract with ODMs or DMSs to have similar, if not identical, products brought to market. As the ODM assumes a greater share of value creation in its bid to attain better margins, it effectively gains more power in the broader ecosystem. Brand names will depend on it to provide designs and development as well as manufacturing. But that design and development is not exclusive; it can be provided to any company willing to do business with it.

This is one reason why Stan Shih said earlier this year that American PC vendors HP and Dell might eventually be rendered extinct within the next 20 years. (Conceivably, it could take less time than that.)

Said Shih:

“The trend for low-priced computers will last for the coming years. But U.S. computer makers just don’t know how to put such products on the market. U.S. computer brands may disappear over the next 20 years, just like what happened to U.S. television brands.”

There’s a real danger that, at least in the realm of PCs and related products, America’s top vendors have sacrificed long-term viability for a short-term reductions in operating expenditures. In transferring design and development overseas, increasingly to China, what defenses do they have against lower-priced offerings that essentially will be the same as their own products. Their only defense will be provided by their marketing departments, which will promote brand identity and equity. The care and feeding of those marketing departments, paradoxically, will result in higher corporate cost structures than those incurred by their Asian (increasingly Chinese) rivals.

It’s a daunting dilemma, one that Apple has been keen to avoid. While Apple uses contract manufacturers such as Foxconn, it has been careful not to outsource its storied design and development to companies overseas. Unlike its North American PC rivals, Apple sees design and development as integral to the value of its brand. For Apple, the brand isn’t just, well, the brand. Instead, the brand derives its power at least as much from design and development (R&D) as from advertising and marketing prowess, though Apple is undeniably skilled in those dark arts, too.

Apple knows that product differentiation, based on the technological innovation, still matters. HP and Dell might have to learn that lesson the hard way.

Toward an Understanding of the China Problem

In this post, I will attempt to pull together some interrelated and overlapping observations (which I have touched on previously) and synthesize them into what I hope will be a rough framework for understanding some of what’s been happening to the global technology industry.

This is a blog, however, and not a book, so I’ll be painting in broad brushstrokes. Some generalizations will be closer to the mark than others, and for that I readily apologize. Still, I thought it was time to write this particular piece. Let’s get on with it.

The very thing that the helmsmen of market-based capitalism wanted most of all might have sewn the seeds of its decline.

Transnational corporations obviously wanted globalization. It would give them access to new sources of growth in foreign markets; it also would provide access to new investment opportunities, new supply-chain relationships, and new pools of low-cost labor. If you were a corporate chieftain, what was not to like about globalization?

But perhaps they forgot about the enduring, immutable law of unintended consequences.

In some ways, globalization has undermined market-based capitalism’s formula for success. For years, as global markets were regulated and protected, corporations struck a tacit pact, or a socioeconomic contract, with the governments and peoples in their home markets and their primary sales territories.  Corporations would generate returns for their shareholders, governments would benefit from corporate tax revenue, and the people would benefit from jobs at the corporations as well as from the infrastructure and services that taxation funded.

But, with globalization – especially in the context of the aftermath of the global financial crisis and China’s rise as an industrial hegemonic power – the old models and verities are unraveling. Many transnational corporations, who serve shareholders before all others, might be compelled by circumstance to reassess their accommodations of enlightened self-interest with governments, employees, and other secondary stakeholders in their home markets.

What I am suggesting here, in a roundabout way, is that globalization set the stage for China – with its massive domestic market and its command-and-control state-based capitalism — to steal a march on market-based capitalism’s standard bearers.  While the social compact in developed markets seemingly has broken down, China has fashioned an impressive alignment of interests between its political rulers, its people, and its geopolitical industrial strategy.

Keenly attuned to history, China’s rulers recognize that it’s easier to run an immense country with the implicit consent of the population than without it. China’s political masters have been careful to ensure that China’s people benefit from the country’s economic growth and industrialization. That’s why we see policies like “indigenous innovation,” designed to ensure that homegrown Chinese companies, products, and technologies are favored domestically over their foreign counterparts. The Chinese market is a big market, and if Chinese companies can dominate there, they will have the economies of scale to compete successfully, in many market segments, on the global stage.

China’s authorities recognize, at a fundamental level, that their long-term political control is inextricably linked to how well they pacify and placate the Chinese population. Providing people with jobs, rising income, and improving standards of living will be essential to the long-term rule of China’s political elite. This is why China will not allow itself to remain in the relative ghetto of commodity-product manufacturing. The Chinese authorities have devised an intricate, sophisticated plan that envisions the country and its people ascending the technological value chain, moving up from low-cost manufacturing to higher-end innovation and research and development (R&D). That transition won’t be easy to achieve, but it has begun.

Look at what is happening in many renewable-energy markets, such as photovoltaics and wind power, where Chinese companies are trying to advance from the manufacture of cheap knockoff products to the development of innovative breakthroughs. They have a lot of work to do, especially on wind turbines, but the plan clearly is in place.

In computer networking, Huawei went from, um, emulating the likes of Cisco Systems and Alcatel to developing its own standards-based networking products that now compete nearly as much on quality as on price against products from longtime market leaders. Cisco CEO John Chambers has said Huawei increasingly is his biggest global competitor, and he is not flattering to deceive.  It’s no coincidence that HP bought 3Com, which had transformed itself into a Chinese company with an American façade.

Meanwhile, the information-technology industry is commoditizing, a process intensified by what HP terms “labor-market arbitrage” – a euphemistic phrase denoting a transfer of jobs across international boundaries to where they can be done cheapest – and increased automation of functions that formerly were delivered by humans. At the same time, the global economy is undergoing a major realignment, as tapped-out consumers (and many governments and businesses, as well) in Western markets can no longer fulfill their role as consumption catalysts. Growth is occurring elsewhere – in the BRIC nations and beyond – and jobs are moving with it.

When the developed-world’s consumers could still buy more stuff than they actually needed, China – the world’s manufacturer – was more than content to buy U.S. treasuries to sustain a mutual relationship of convenience. Now , though, as the U.S. consumer engine sputters, China is reassessing its options. Already, we’ve heard Chinese officials say the U.S. and Europe are “less indispensable” to China’s strategic aspirations than they were in the past. Chinese has begun cultivating its own consumer economy, but it’s doing so under a state-controlled capitalism that espouses “indigenous innovation,” under which Chinese companies will keep most spoils and benefits at home.

Many Western technology companies are banking on growth derived from sales of products and services in China. As long as China pursues policies of nationalist mercantilism and indigenous innovation, those growth expectations are unlikely to be realized.

The only way Western companies will be allowed to derive big contracts from China’s biggest customers, most of which are owned or affiliated with the Chinese government, will be by moving their core R&D efforts and initiatives to China, which will make them subject to that country’s intellectual-property rights (IPR) and laws. This strategy amounts to a very different type of labor arbitrage from the one to which transnational companies have subscribed.

Fear not, though, because Chinese regulations and laws pertaining to intellectual property will become more effective and protective as China gains the upper hand in innovation and R&D. As HP has figured out, China doesn’t so much care that a company is Chinese as long as it plays by China’s rules, which will entail doing an increasing percentage of innovation and R&D in China, and not elsewhere.

Think about that.  It might be a beneficial arrangement for corporate shareholders – though that remains to be seen – but it’s not so good for engineers, researchers, and many other knowledge workers in Western economies.

I think this dynamic, the zero-sum rise of China at the direct expense of many of us in the developed world, is a problem that needs to be recognized and addressed. What China is pursuing is not your father’s market-based capitalism, in which the benefits of trade presumably would be widely shared worldwide. This is a different model, one guided primarily by geopolitical considerations. As it gains ground, it will have major repercussions worldwide.

Pondering HP’s $1-Billion Services Remake

I typically use this blog to convey my modest knowledge and understanding of industry developments and events, but toward the end of this post, I will ask my readers to provide me with some enlightenment. I hope you will be kind enough to assist in this ambitious endeavor.

First, let’s step back and consider HP’s major announcement yesterday. As Craig Matsumoto of Light Reading wrote, HP dominated, perhaps monopolized, the cloud-computing news yesterday with is plans to cut 9,000 employees and spend $1 billion over the next few years to extensively automate its customer-facing EDS data centers.

Yes, I know, HP says it will hire 6,000 employees back, but the upshot is that HP is radically revamping what’s left of EDS for a cloud-computing future in which customer relationships will involve intensive automation and a lot fewer humans than were necessary in the old “high touch” era of consulting’s halcyon days.

We’re in a different set of economic circumstances today, though, and no company embraces that lean, mean ethos like HP. It’s pushing standardized, commoditized hardware and relentless data-center automation with a near-medieval vengeance, employees and competitors be damned. If the shareholders are smiling, with their thumbs jutting upward, all is well in Mark Hurd’s austere universe.

All of which brings us to why this announcement was made. While Hurd is lauded by investors as the consummate operational scourge, buttressed by a zealous executive team that searches for efficiency gains and cost reductions like value shoppers looking for deals at Wal-Mart, he and his consiglieri were seen to be struggling to get full value from their $13.6-billion acquisition of EDS.  That’s not a favorable perception, and it’s not one Hurd or the HP board wants to see gain popular currency. Radical surgery was required, as it usually is (even perhaps when it isn’t) somewhere within HP.

Over at SearchDataCenter.comBarbara Darrow provides a cogent analysis of what’s behind HP’s data-center shakeup. She points out that HP, in its earnings call two weeks ago, reported that revenue from its services division grew a paltry two percent year over year, with much of that gain more than offset by currency fluctuations. Meanwhile, HP’s lower-margin PC sales spiked more than 20 percent during the same period.  The contrast between the performance of the two groups was stark and unwelcome.

So, more change comes to HP. The shuffling of bodies out of and back into the company will continue at a relatively frenetic pace until Hurd and his team crack the code or steer the company off the rails. If the history of the technology industry teaches us anything, it’s that past performance does not guarantee future results, so be careful about placing wagers on the ultimate outcome.

Speaking of results, this is where I need the benefit of your wisdom. During a call yesterday to announce its momentous overhaul to EDS, HP took a question from an analyst regarding the company decision to incur a GAAP charge rather than a non-GAAP charge (or charges) to account for the restructuring costs. Here’s the exchange, as excerpted from a Thomson Reuters transcript:

Toni Sacconaghi – Sanford C. Bernstein – Analyst

And then, Cathie, just on the charge. You know, this is a multi-year transformation, something clearly looking to improve your business. It looks like you will be excluding the restructuring charge from your non-GAAP earnings. Could you just review how you determine whether something is a charge or a one-time charge that you choose to exclude from non-GAAP earnings and what is a normal course of transformation in terms of charge and what you would include in as a charge and non-GAAP earnings?

Cathie Lesjak – Hewlett-Packard Company – EVP, CFO

Sure. We look at a number of different factors when we’re determining whether or not the charge should be a GAAP-only restructuring charge. We look at things like whether or not it’s one-time in nature as opposed to a recurring –. It’s generally a global in scope kind of initiative involving a number of different countries.

It also has to involve something structural, long-term strategic realignment of a business segment or across a business segment. While business charges in non-GAAP are typically more routine, routine rebalancing of activities and adjustments to changing business conditions. So this is really a structural change.

We are transforming the Enterprise Services business with the investment that we are making and we are making these one-time investments to modernize our delivery organization and expand our global footprint and fundamentally simplify our operating model and it is really those pieces that have us take this out as a GAAP only charge. We don’t really want it to basically taint the ongoing earnings with something that is nonrecurring in nature.

Ann Livermore – Hewlett-Packard Company – EVP, Enterprise Business

Tony, this is Ann. One example of that would be a when Cathie mentioned simplifying the operating model, one action we’re doing is to take some layers out of the structure. If you look at — we always count layers in between our clients and our CEO as one of the things that we think is important from an operating model perspective. So part of this action, for example, and why we think the charge is appropriate this way is because we’re taking some layers out of the structure.

Huh? Alas, I am a simple man, but that distinction seems arbitrary to me, open to misinterpretation, if not abuse. Please enlighten me, dear readers, as to why HP applied the relevant charges in this manner. This curious mind wants to know.

HP Challenges Hallowed Tech-Industry Axiom

Only those employed or formerly employed at HP can tell us what it’s really like inside the compound, but a feature article posted on the Forbes website prompts some obvious questions about what’s happening behind the security checkpoints.

Then, of course, there are all the rumors about monthly layoffs. But let’s deal with the Forbes story, because it includes some fascinating details.

Mostly, when I see these CEO profiles in the business press, I prepare myself for the worst. I expect unquestioning hagiography, and, too often, that’s exactly what I get. There’s some of that in the Forbes story on HP CEO Mark Hurd, but there’s much else besides.

We learn that Hurd is driven, never satisfied, always pushing himself and his people for better results. He’s eliminated waste from HP, but he’s also relentlessly chopped at departments and their personnel. Is he still cutting fat or is he now slicing into muscle, sinew, and bone? It’s hard to say.

One thing seems certain: The natives within HP are restless. Quoting from the article:

Below the senior tier, however, HP is more miserable than restless. It consistently ranks at the bottom of its big-scale competitors on Internet sites where employees compare notes. On one (www.proletar.com/by-employees/HP.html) it scores 1.6 out of a possible 5 stars, compared with 3.3 at Cisco and 3.7 for IBM. At Glassdoor.com HP managed a 2.5 out of 5 among 1,045 employees (“If you want to be kicked like a dog, come work here!” is typical), three slots above Countrywide Financial, and Hurd got a 30% approval rating (IBM’s Samuel Palmisano, 40%; Chambers, 60%). Common complaints concern overwork, favoritism and managers looking over their shoulders in fear of not meeting Hurd’s inexorable goals. “A sweatshop,” says one low-level manager who recently departed. “No one wants to quit now, but watch them go when the economy recovers.”

The pain seems particularly acute for some of the dwindling population of long-term vets who remember HP, perhaps wrongly, as a warm and caring place. Founders William Hewlett and David Packard devised the cuddly idea of management by walking around and hosted company cookouts to buffer their hard-nosed, hard-driving approach. By contrast, HP’s executives staff arrives at headquarters in Palo Alto through a secure entrance, surrounded by barbed wire.

Wait a second. Did you catch it? “HP’s executive staff arrives at headquarters in Palo Alto through a secure entrance, surrounded by barbed wire.” Hmm. Is it Palo Alto’s version of the Green Zone? Does Hurd address the HP masses from a raised lectern on a stage protected by chicken wire?

Can a corporate culture be said to be healthy when the company’s uppermost executives are protected as though they’re in a war zone, presumably under real or imagined siege from their own employees? The mind (mine, anyway) boggles.

But here’s the truly disturbing thought, a question I tried not to ask myself: Can HP continue to churn out profits and growth even as it alienates and physically distances its own employees?

The old truism in the technology trade is that employees are a company’s greatest asset. Pursuant to the philosophy of enlightened self-interest, technology companies realized they were in an industry where success largely was predicated on innovation, knowledge, and intellectual property. As a result, people — employees who provided all that value creation — were indispensable.

But is it still true? While not alone, HP has been at the forefront of a technology-industry sea change. In recent years, but preceding the ascension of Hurd, HP has moved from a business model that relied on qualitative differentiation based on research and development to one more dependent on quantitative differentiation based on relentless commoditization of technology markets.

It’s pending acquisition of 3Com is a case in point. That deal was driven by HP’s desire to use 3Com’s standards-based, relatively low-priced networking gear as a commoditizing cudgel to put price and margin pressure on Cisco. The vast majority of 3Com’s engineering talent is in China, where engineers are not nearly as expensive as they are in Silicon Valley. Hence, HP’s cost of networking goods decreases, giving it the latitude to undercut Cisco on price.

As Ernest Park, CIO at 3M, says in Forbes piece:

“IBM doesn’t like to move on price, and Mark is very aggressive. He’s a great salesman, and he wants to get share.”

IBM doesn’t like to move on price, and, believe me, neither does Cisco. Margin is very important to Cisco, and to its shareholders. Part of Hurd’s strategy is to make Cisco bend or break on the margin issue, which is why Cisco is scrambling so hard and fast to define a network-centric vision for cloud computing and to move aggressively into those vaunted market adjacencies.

If HP wins, though, we might have to question that axiom about employees being a company’s greatest asset. According to a growing number of accounts, HP increasingly views its employees as cost factors as opposed to value generators.

HP as Embodiment of IT-Industry Commoditization

In a post on why he was partly wrong about Carly Fiorina’s reign as CEO of Hewlett-Packard, Joel West accurately describes not only what happened to HP, but also what’s happened to most of the IT industry in the last decade.

West argues, quite convincingly, that the industry has been commoditized relentlessly. Riding economies of scale, the IT industry increasingly prizes operational leanness and systematic cost containment over innovation and technology-based differentiation. Yes, there are some areas where innovation and differentiation still matter — smartphones are cited as an example by West — but they are fewer and farther between as the industry advances into maturity.

Quoting an article written on the weekend by Chris O’Brien of the San Jose Mercury News, West notes that HP has dismissed 75,505 employees during the last decade. That number is staggering, but why it came about is equally instructive.

As West contends, HP changed because it felt it had no choice. Once commoditization strikes an industry, companies either ride the wave or get drowned by it.

Quoting West:

In 2000-2002, I thought Fiorina was destroying HP’s traditional business model and turning it into a commodity, low-innovation company. As both an engineer and an academic researcher, I felt she was destroying the great engineer-driven culture of the founders and replacing it with a by-the-numbers, penny-pinching, bean-counting mentality.

It turned out that I was right, because that’s what Fiorina (and then Hurd) did: end what had made HP great.

The problem with my argument was that I assumed that HP had a choice. In retrospect, it didn’t: Fiorina saw this and I didn’t.

During its heyday created the HP 35, various minicomputers, workstations, calculators and other innovative products. (That’s not counting the test instruments that Fiorina’s predecessor dumped into Agilent in 1999). There were many opportunities for innovation, and HP exploited them.

However, the reality is that overall IT industry growth ended with the NASDAQ peak of March 2000, and since then the industry’s revenues have been about replacing existing products rather than growing its overall share of the economy.

West concludes his piece as follows:

The IT industry has become a slow/no-growth mature industry where commoditization is the unescapable reality. Economies of scale and scope are the only hope for even successful differentiated companies like Google to maintain their lead.

Now I admit it: Commodities are HP’s future, and recently it’s been working well. Today, the only alternative seems like more of the same — good for shareholders, but bad for employees.

Indeed. That’s where we stand today in much of the IT industry, unfortunately. If one accepts the argument West makes, one can see why HP’s strategy of relentless commoditization led not only to the transformation of its corporate culture but also to many of its acquisitions, including its purchase of 3Com, with its vast team of low-cost Chinese engineers and its extensive product portfolio.

This isn’t about slagging HP, though. There would be no point in that.

I would just like us to understand that we need to start seeing the IT industry for what it is today rather than for what it was more than a decade ago. Industries evolve and circumstances change, often beyond our control. Looking through the prism of IT’s past won’t help us understand what’s happening to it today.

HP Engineering Exodus?

LIke many people, I hear rumors occasionally. The challenge is in determining whether the source and substance of the rumor can be trusted.

If you’re dealing with a familiar source, you’re in a relatively good position to assess the veracity of what you’re being told. When that’s not the case, you’re in uncharted waters, left to navigate without a GPS or a compass — and sometimes without even a paddle. It’s in those cases that you invoke deduction and intuition.

There’s a rumor I’ve been hearing lately about engineering defections at HP’s American operations. I don’t have granularity on the numbers involved, where or in what departments the exodus is occurring, or how widespread the flight might be.

At first, I dismissed the rumor. Given the state of the economy, I wondered, where would these migrating engineers go? Still, at the top of the food chain, somebody always needs a good engineer. The best would find new employers.

But why would it be happening?

Well, under the rule of Carly Fiorina and now Mark Hurd, HP has become less the redoubt of the engineer. Under Fiorina, marketers were ascendant, and under Hurd we’ve witnessed the rise of beancounters and operational technocrats. It’s not the company of the eponymous founders, and the HP Way is as likely to be a street address as a company ethos.

Then, if you’ll remember, there was the recent Glassdoor.com survey, listing the best and worse of technology-industry employers. HP ranked as one of the lowest-rated technology companies for which to work, and Mark Hurd was not viewed favorably by HP employees.

In 2008, Hurd gave a talk bemoaning the deteriorating pool of technical talent in the USA. Said Hurd:

“In this country, we have a problem. The source of this country’s greatness has been its technical talent . . . But you have to go where the tech talent is, and right now the tech talent is in Asia.”

“We often can’t keep [engineers] in the country even after they’ve graduated from U.S. universities like Stanford.”

Hurd said that only 40 percent of HP’s then-40,000 engineers were based in the US. Previously (he did not specify an earlier date), HP employed about two thirds of its engineering staff domestically, according to the HP CEO.

The evidence suggests that HP was having an engineering problem in its home market. In his 2008 talk, Hurd rationalized HP’s engineering offshoring. It isn’t a stretch to suppose that HP’s American engineers might wish to seek employment at a company more committed to their job security.

Finally, HP recently announced the acquisition of 3Com, formerly an icon of American computer networking that has remade itself into a Chinese company with an American history. Most of 3Com’s engineering is done in China. When the deal was announced, I wondered whether HPs ProCure engineers might be the ultimate losers.

I don’t have hard data to confirm the rumor about engineers leaving HP. If the rumor were to be confirmed, though, it wouldn’t come as a shock.