Hewlett Packard Looking for a Port in the Storm

The current two dimensional HP logo I wrote an entry on August 11, 2011 concerning the change of strategy for Hewlett Packard titled, HP and the Challenge of Change. Mark Hurd resigned in August of 2010 amid an ethics scandal. The company purchased Palm Computer in July 2010 and then on August 18, 2011, HP announced that it would discontinue production of all webOS devices, including smart-phones and tablets.

Léo Apotheker appointed Chief Executive Officer Léo Apotheker was appointed Chief Executive Officer and President in November 2010. Apotheker, previously served as CEO of SAP. The HP Board also elected Raymond Lane, Managing Partner at Kleiner Perkins Caufield & Byers, as a new member of the Board and designated him as non-executive Chairman. These decisions changed the marketing direction of HP. Both of these men were from a software background and this influenced their decisions on a new marketing direction. WebOS and Smart phones were not making desired profit targets. Smart phones were dropped. In August 2011, HP announced that it was interested in selling its Personal Systems Group, responsible for all of its consumer PC products, including webOS, and that webOS device development and production lines would be halted. HP sold off the remaining Touchpads in inventory. On August 15, 2011, it was revealed that HP had created a wholly owned subsidiary, Gram, made up of the remaining components of Palm computing hardware. In December 2011, HP announced it would release webOS source code in the future under an open-source license.

After the Mark Hurd debacle, Larry Ellison, a close friend of Hurd and CEO of Oracle Corporation, sent an e-mail to the New York Times in August of 2010 saying “the HP Board just made the worst personnel decision since the idiots on the Apple Board fired Steve Jobs many years ago. That decision nearly destroyed Apple and would have if Steve hadn’t come back and saved them. HP had a long list of failed CEOs until they hired Mark who has spent the last five years doing a brilliant job reviving HP to its former greatness”. A shareholder lawsuit ensued following Hurd’s departure. The suit sought unspecified damages and changes to HP’s corporate governance. It claimed HP lost “significant credibility” due to the controversy and a loss of $9 billion in market capitalization when shares began trading the Monday after Hurd’s resignation.

Undeterred, HP moved forward with their strategy of competing with other software giants in cloud computing for enterprise, commercial and government markets. Apotheker set this strategy in motion by purchasing Autonomy. The Autonomy purchase was Hewlett-Packard’s largest since the $13.2 billion acquisition of Electronic Data Systems Corp. in 2008 and Apotheker’s largest deal since becoming CEO. On March 22, 2011, HP purchased the data-analysis company, Vertica at an undisclosed price. Apotheker soon cut sales forecasts and the stock market reacted with tumbling share price.

Meg Whitman CEO HPProgress forward and we find Raymond Lane as Executive Chairman and Meg Whitman became Chief Executive Officer on September 22, 2011. Meg Whitman was an unsuccessful candidate for Governor of California in 2010. She previously was an executive for eBay and became a billionaire from her tenure. Whitman’s major decision during her first year as CEO was to retain and recommit the firm to the PC business that her predecessor announced he was discarding. The latest news from the fallout of her predecessor now claims HP was duped and has taken a $8.8 billion write-down.

My own opinion, maybe insignificant to corporate giants such as HP.  I believe a company shouldn’t lose sight of it’s legacy no matter what product mix they offer. When William (Bill) Redington Hewlett and Dave Packard found Hewlett Packard and became a significant player in the test instrumentation and measurement industry, they were known for their engineering expertise and quality. When you bought their equipment you knew you had made a purchase you wouldn’t regret. Many years later, HP moved into the consumer market often through acquisitions, such as Compaq computer. This altered their basic ideals when mass production became more important than quality. They were just another PC manufacturer and that is not the place you want to compete unless you can charge a premium like Apple for your engineering. When HP decided to move away from hardware and into software, they were betting everything on the market wanting to purchase products still in gestation.

HP has announced so many changes to their product offerings and corporate direction, you could get whiplash just watching their course change. Meg Whitman announced HP wasn’t going to move away from their PC business. An investor can lose sleep over the next pronouncement and each negative announcement will have impact on the viability of this industry icon.

Interestingly, I believe they are positioned better than most anticipate with their purchase of Vertica. Big data analytics is the process of examining large amounts of data of a variety of types (big data) to uncover hidden patterns, unknown correlations and other useful information.