Itanium Neutron Bombs Hit HP Campuses, Oracle Looking for Survivors

It was a series of Itanium Neutron Bombs detonating during the reign of 4 management teams (Platt, Fiorina, Hurd and Apotheker) that left HP campuses in Cupertino and Palo Alto in the custody of crickets. The devastation to employees and stockholders is absolutely immense and the current strategy calls for a further retreat into the enemy territory of IBM and Oracle. If you want to point to a date that will live in Infamy – it is July 6, 1994. The day when Intel and HP tied the knot with a pair of Itanium rings. The stock then sat at $9.25, a point it may soon revisit.

It was a marriage intended to solidify the positions of both spouses as monopolistas in their respective markets. Intel, the king of PC processors was looking for a way to expand its reach into the rich, RISC based server space that was then dominated by IBM, Sun and HP. HP wanted to leverage Intel’s processor design and Fab economics to propel them into the lead. If HP were to sprinkle a new Intel 64 bit processor across all its various lines of workstations and minicomputers it could outperform and outsell Sun’s SPARC. There were numerous issues with this deal from the start. Would Intel sell Itanium at a reasonable price? Would Intel hit a performance target that met the market needs? Would software vendors port over to the new architecture?

The answer to these questions was the same back then as they are today. No hindsight is required. In fact by early 1994, the industry had just witnessed the knockout blow Intel inflicted upon the RISC camp with its complex x86 architecture. Intel prevailed with volume, good enough performance, and a truckload of software apps that made it impossible for an industry to move to RISC (see Intel’s Back to the Future Buy of Micron).

But a new twist appeared that created confusion and uncertainty inside Intel that would set-in-motion the Itanium train. HP Engineers were playing around with a new architecture called VLIW (Very Long Instruction Word). They claimed it was the architecture of the future that would outperform any implementation of x86.

Factions inside of Intel argued both sides of the x86 vs. VLIW. A Titanic Battle ensued where the only possible outcome was to do not one or the other but both. However to win the approval of analysts, roadmaps appeared in the mid 1990s showing that Itanium processors would occupy not only high-end servers but also desktops and laptops. To get there though, would require porting Microsoft and the whole PC software industry. Intel listened to the sweet talking server Harlot, girded its loins and poured billions into the Itanium hardware and software ecosystem. Seventeen years later the needle has barely budged.

All was quiet on the western front for Intel and HP as they continued to print money through the late 1990s. However HP thought it wiser if it could assemble the complete set of Over-the-Hill Gang minicomputer architectures and convert them to Itanium as well. So added to their PA RISC and Apollo computers, were Convex Computer acquired in 1995 and Tandem and DEC VAX acquired with Compaq in 2001. Each entity though had the issue of porting applications and to this, HP created software translators that effectively ran at only 10-20% of a native speed Itanium. A good example of Less is More.

No worries, with Compaq out of the way, HP could win the PC market through economies of scale on the purchasing side and through domination of the retail channel by securing most of the shelf space. Fiorina and Hurd kept cutting the operating expenses like it was kudzu in North Georgia. But no matter how much they cut, they couldn’t eliminate the next lower cost competitor coming out of Taiwan or China.

Craig Barrett, the CEO of Intel, went on his own buying spree in the late 1990s for networking silicon to fill his fabs, all the while neglecting the threat that AMD had planned with the launch of its 64 bit x86 server processor in September 2003. Intel finally threw in the towel on converting the server world to Itanium when they launched their 64 bit Xeon processor in July 2004, which was exactly 10 years after the HP – Intel handshake. Imagine where Intel would be today if they could rewind the clock and instead of pouring billions into Itanium, they built an x86-64 bit that hit the market in 2000. There likely would have been no resurrection of AMD coming out of the tech downturn.

The HP that began in 1939 in a garage in Palo Alto does live on in the 1999 spinout called Agilent and its further spinout called Avago. The largest IPO in Silicon Valley at the time, Agilent and Avago were considered too slow growth to fit under the HP corporate umbrella. But both are highly profitable like they were when they spun out. On a price to sales basis Agilent and Avago are 4 and 10 times respectively more valuable than HP.

As Mark Hurd and Larry Ellison huddle in Oracle’s headquarters, what if anything is left of HP that would be of value (sans printers)? Ah, you say – the property that the HP campuses occupy in Cupertino and Palo Alto! Let’s jump in the car and take a look!

The drive along the tree shaded Pruneridge Avenue in Cupertino is very calm. I know it well because my wife and I lived in an apartment on the corner of Pruneridge and Wolfe when we moved to California in 1998. My wife worked for HP for a short period of time in the old Tandem building. I would point out the campus to my boys as we drove past on our way to our pool past the end of the campus. For many years the buildings were unoccupied until a real estate agent put in a bid from a secret buyer – Larry’s friend Steve. In 2015 it will all come alive again when a pentagon-sized spaceship campus opens up.

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