Tablet Mania: Why The Tech Industry Thinks Their Time Has Finally Come

Here’s a story I wrote that gives some perspective on the long and mostly disappointing history of tablet computing.

The Next Big Thing, 20 Years Later
The tech industry thinks the time is right for tablets, thanks to lower prices and friendlier features

By Spencer E. Ante

If there was a land of misfit gadgets, the tablet computer would be one of its oldest residents. The tech industry, though, refuses to give up on these slate-like portable PCs. Tablets from Hewlett-Packard, Dell, and others were some of the stars at this month’s Consumer Electronics Show in Las Vegas, while the buzz around Apple’s long-awaited entry into the market, due out this spring, is already deafening. “The industry understands better how people can use tablets,” says Roger Kay, president of Endpoint Technologies Associates.

Yet PC makers have been trying to sell consumers on the utility of tablets for decades—with little success. In 2001, Microsoft Chairman Bill Gates predicted that tablets would be the most popular form of PC sold in the U.S. within five years; in 2009, they made up less than 1% of the market, according to estimates from research firm IDC.

The first generation was doomed by a combination of big price tags, short battery life, and clunky interfaces. Tablets’ capabilities have since evolved, as have the tastes of consumers. Portability is paramount, and the latest crop are lighter, boast longer battery life, and better screen technology. Software is more sophisticated, too, and Web connections have improved. “The timing is right for this,” says Philip McKinney, vice-president and chief technology officer of HP’s Personal Systems Group. “We wouldn’t go into a market that we felt wasn’t going to be widely adopted.”

Read the rest of the Bloomberg BusinessWeek story here.

Innovation During a Downturn

Here’s an Adobe PDF of a charticle I created for this week’s issue of BusinessWeek. It’s titled, “Creative Beginnings in a Downturn” and highlights lessons from four companies that took advantage of bad times–Hewlett Packard, Digital Equipment, Genentech and Google–to improve their business.

Over the last six months, I’ve written about this issue a few times. But this chart provides a good encapsulation of the idea, as well adding some new information about Genentech and Digital Equipment–all in a easily digestible and handy chart form!

View this document on Scribd

Can Jerry Seinfeld Save Microsoft Vista?

In this week’s Digital Dish, the BW tech crew examines Hewlett Packard’s earnings, Comcast’s reaction to the Federal Communications Commission’s request for a new Internet traffic management system, and whether Microsoft’s new ads starring Jerry Seinfeld will solve Vista’s perception problems. (Hint: not a chance.)

Check out the video by clicking here.

Valley Boy: Part 2 of an Interview with VC Pioneer Thomas J. Perkins

First off, some shout-outs are in order: Thanks to three of my favorite Web pubs–New York Times DealBook, Silicon Alley Insider and Valleywag–for linking to the first part of the Creative Capital interview with venture capital pioneer Thomas J. Perkins.

And now, in the promised second part, Perkins talks in depth about how he helped turn around Hewlett-Packard by forming a technology committee (a key move to boosting profits was dumping Intel chips for AMD chips), the pre-texting scandal and why he disagreed with Patty Dunn over practically everything. “Patty Dunn and I didn’t agree on the time of day,” says Perkins.

What struck me in re-reading the interview is the amount of passion that Perkins brings to his job, his love and deep understanding of the technology business, and the way that his battle with HP became personal. In fact, Perkins was so mad at the company for the way it handled the spying scandal that afterwards he bought chose to buy a computer from Lenovo–and not HP!!! “I was kind of mad at HP,” says Perkins.

What did you think about the 60 Minutes interview?
She kept asking me how much money I made. They tape hours. I thought it was OK. I wouldn’t have done it if it wasn’t Leslie Stahl. She kept saying, “This is not going to be about HP.” Of course, we ended up talking a lot about HP. I guess that was inevitable.

How do you think HP is doing?
I have no insider information. I am not on the board and Mark doesn’t call me up and tell me things. From what I can see, it’s in great shape. I have tremendous respect for Mark. He’s really smart and works well. He understands and has cultivated the technology. He has a real good relationship with the chief technology officer, Shane Robison, who I think walks on the water.

How much of the past problems were about leadership and how much were about strategy?
Strategy has changed. We did something unusual at HP when I joined the board. With Carly’s blessing, we set up a technology committee. The combined company was spending pretty close to $5 billion a year on R&D and the board was oblivious to what was going on. It’s a huge amount of money. So we established this committee. It eventually became the whole board. It met the day before the board meetings and really got into the strategic aspect of HP. The support of that committee made it possible for Carly and Mark to take some risks with the understanding that the board was behind us.

What were the risks?
There were three things. HP had had a very liberal technology licensing policy. Any salesman could mortgage the patent portfolio to get the next order. HP was actually paying out $100 million a year in royalties to others, and IBM, with a patent portfolio marginally larger, is taking in $3 billion a year. At the first meeting of the technology committee we changed that. I insisted that every single license had to be signed by Carly Fiorina. It was abrupt but it is working.

The second thing we did was to spend some money and get serious about competing against Dell Direct. Compaq had made a good start but the HP Web site was a nightmare. So we invested pretty heavily in that.

But the most important thing was we encouraged the company to redirect a lot of purchases of microprocessors to AMD from Intel. We slowly and gradually encouraged management to move in that direction. They did. A lot of the improvement of HP’s [profits] is a result of that. It was kind of touch-and-go for a few quarters as to whether we could do it or not, and we did. This is an example of how a board of directors can really help management. When Mark came in he did all that and more.

Is HP now making money off of its patent portfolio?
Yes.

Is it substantial?
Yes, and growing. A lot of these contracts have to expire.

Has Mark made it safe for technologists?
Yes. And you didn’t ask, but in my opinion he knew next to nothing about the spy thing. I apologized to Mark. I told him your job is to fix HP. My job is to fix the board. And I ended up resigning. He called me up and said, “Geez, how could you do this to me?”

Is it fixed now?
I think so. I still have some friends on the board and they say it’s humming.

Have you followed the Lenovo after it purchased the IBM PC company?
Only to buy one of the computers. It’s terrific.

You bought Lenovo instead of an HP?
I did. I also have an HP. I was kind of mad at HP. (Laughs)

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Who serves the role on the board now of championing technology?
There are still a few geeks on the board and there is still a technology committee. The key thing I wanted, and this is against the venture capital model, I wanted Mark to be chairman of the board. A company of that size, he had to be chairman, he had to set the agenda for the board. And that was fundamental difference between Patty Dunn and myself. What does the board do?

You meet at 8:30am and planes have to be caught around 1pm. An audit committee meeting can take an hour and you’ve got all the other committees. And then it’s almost time for lunch and you have a few minutes to talk about competition, strategy, growth rate, succession, the future, fundamentally important stuff. And it tends to get scrunched into a very limited amount of time. And if you don’t even think it’s important, it doesn’t get discussed. So Dunn and I really disagreed on that. I just felt the board had to keep the pressure on–marketing, engineering, succession, competition, doing it on and on.

Also Dunn and I disagreed on what kind of directors we should bring on to the board. I wanted to bring more entrepreneurs from Silicon Valley onto the board. Why? The product life-cycle of Silicon Valley is 18 months. And if you miss a cycle and you’re in real trouble. The sense of urgency about it all is essential to have on the board. Dunn felt we had to bring on people that Wall Street would know and appreciate. So we had a hell of a time.

So you’re saying the board trouble was over the chairman role? What about the pre-texting thing?
Carly Fiorina, not me, has said that the spy scandal was Dunn’s method of restructuring the board. Her primary hope was that I was the leaker. I wasn’t. Turns out she got rid of me and [George] Keyworth at the same time. Carly said that. I don’t dare say that.

So it was not at the root of your disagreement?
It was a lot of things. Dunn and I didn’t agree on the time of day. We started off pretty well. I encouraged her to be chairman. I got her some extra money. I encouraged her to be very active. And we would meet monthly and speak more frequently on the telephone. But it just became really tough going.

How did the relationship sour?
A little bit on all fronts. It was no one big thing. Directors, strategy, compliance experts, how the board spent its time, all these things.

If you had not resigned would all of these things have come out?
If I hadn’t resigned it would not have come out and Patty would still be getting awards for brilliant governance. I didn’t blow the whistle. I tried to get the company to fix it and investigate itself, and primarily stop doing it. If they had taken a serious look at it, I didn’t see how Dunn could continue as chairman.

I thought she could stay on the board. I thought the board would evolve into that conclusion but they didn’t. They stonewalled me for about three and a half months. My lawyer said, “Look Tom, you were chairman of governance. This theoretically all happened under your purview. You’ve got to tell the Securities and Exchange Commission.” So I did. And the SEC went public.

I thought a lot about it. In the end, I felt Dunn did not want to stop being chairman, that’s for sure. And I felt that she was pulling the company into a very bad place. So I decided to fall on my sword.

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Why Hewlett-Packard is Goldman Sachs’s Top Tech Stock in 2008

Most investors have been dumping technology stocks this year like a bad date. But if you are bullish on technology, what would you invest in?

In a research note published on Jan. 3, Goldman Sachs technology research team recommended Hewlett Packard as its top tech stock for 2008 (in addition to IBM, Ingram-Micro, and Seagate). Why? GS says HP lies at the intersection of three trends:

1. Tech valuations remain low; Goldman says the overall price to earnings ratio of tech hardware stocks is below the S&P 500.

2. PCs have more staying power than people realize, even with “further slowing in the US and Western Europe.”

3. Tech demand from small and medium-sized businesses should outpace corporate spending in 2008.

 I would add two more reasons to be bullish on HP.

1. Excellent management: Mark Hurd has been working wonders over there.

2. Overseas Exposure: HP maintains the highest percentage of overseas sales of any large cap tech company, deriving 67% of its sales from outside the slumping US. That compares to 61% for IBM, 45% for Cisco, 44% for Dell, 39% for Microsoft and 32% for Yahoo!

Wall Street Newsflash: Laura Conigliaro, one of the smartest tech analysts on Wall Street, has recently changed jobs and become co-director of U.S. research at Goldman Sachs. David Bailey, who told me the news a few days ago via email, has now taken over coverage of tech hardware. Congrats Laura and David!

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Tech Dominated by M&A–not IPOs

A few days ago, I offered readers my forecast for tech IPOs in 2008. But in many ways, the real action–and most realistic exit strategy-for the lion’s share of startups is to be swallowed by some bigger fish. This point was driven home to me when I saw a recent end-of-year M&A report from America’s Growth Capital. Last year, there were 307 tech mergers or acquisitions, down 19% from 381 in 2006. That compared to 60 tech IPOs–a ratio of about 5 to 1.

The disparity in the importance of the IPO market and the M&A market really becomes clear, though, when you look at the value of the transactions. Last year, as of 12/19, there was $203 billion worth of tech M&A deals, compared to just $7 billion in capital raised through IPOs. That’s a ratio of 31 to 1!!!

Although the number of tech mergers declined, the value of those transactions soared 46%. The main reason? The explosion of huge private equity buy-outs. The number of tech deals exceeding $1 billion soared 38% last year. And four out of the top 10 largest deals were handled by private equity shops: Kohlberg Kravis Roberts acquired First Data, Silver Lake Partners bought Avaya, Madison Dearborn Partners scooped up CDW and The Blackstone Group took over Alliance Data Systems.

So what does this portend for 2008? With the private equity biz in a deep freeze, I would expect that we’ll see a significant decline in both the number of deals and the total value of transactions. That leaves good ol’ corporations as the main predators.

The prevailing business model, er, I mean, fantasy in Silicon Valley today is to be acquired by Google. But Google is not the most acquisitive tech company. Here’s the list of top 10 acquirers in 2007:

Microsoft (17)

Cisco (15)

Google (14)

Oracle (12)

EMC (12)

Hewlett Packard (11)

IBM (11)

Interactive Corps (9)

Yahoo! (6)

Nuance (4)

eBay (4)

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