March 3, 2021

Common Sense: H.P.’s Transition Anything but Seamless

Just a year ago, Mark Hurd, H.P.’s chief executive, was forced to resign in the midst of allegations of sexual harassment and expense account irregularities, many details of which remain shrouded in secrecy. (The board concluded the sexual harassment claim was unfounded, but that Mr. Hurd’s lack of candor had cost him its confidence.) The vote to demand his resignation was unanimous, although the board was sharply divided, especially over how to handle his departure and seek a new C.E.O. But H.P. was so big, so dominant in most of its markets, and so profitable that Mr. Hurd was dispensable, according to people familiar with the board’s reasoning. “We don’t need you,” one board member bluntly told Mr. Hurd, or words to that effect.

So how has Hewlett-Packard fared under new leadership?

On Aug. 18, H.P. announced simultaneously that it was exploring “strategic alternatives” and might sell its dominant personal computer business, which accounts for roughly a third of the company’s revenue; that it was scrapping its new, much ballyhooed TouchPad tablet computer; and that it was acquiring a British software concern, Autonomy, for $10.3 billion, a steep 11 times revenue. The stock plunged 20 percent to $23.60 a share. When Mr. Hurd resigned, it was just under $46, so the one-year decline amounted to 49 percent. (The Standard Poor’s 500-stock index gained about 3 percent over the same period.)

“I didn’t know there was such a thing as corporate suicide, but now we know that there is,” a former H.P. director, the venture capitalist Tom Perkins, told me this week. “It’s just astonishing.”

“H.P. was the epicenter of Silicon Valley, geographically, culturally and historically,” an executive at another technology concern said. “Is there any analogy for an institution so respected that has fallen so far so fast? I can’t think of one.”

No one claims that Mr. Hurd, now president of Oracle, is another Steve Jobs. His critics have portrayed him as a glorified chief operating officer who ruthlessly cut costs and starved innovation. Still, there’s no denying the results during the six years he led H.P.: pro forma earnings leaped 242 percent on a 57 percent gain in revenue (to $120.4 billion); H.P.’s stock price rose 130 percent, to over $45 a share; free cash flow surged 138 percent and operating margins doubled. Forbes magazine put him on its cover in April 2010 with the headline: “He Wants It All.”

To replace Mr. Hurd, H.P.’s board hired Léo Apotheker, the former chief executive of the German software giant SAP, even though SAP had declined to renew Mr. Apotheker’s contract after just seven months in the top position and he was linked to a software theft scandal that cost SAP a $1.3 billion damages award (he has denied any direct involvement). Nor, as a software executive, did he have much experience with hardware, especially the printers and servers at the core of H.P.’s franchise.

On Jan. 20 this year, H.P. announced the resignations of four directors, two of whom had initially supported Mr. Hurd during board deliberations and resisted his immediate ouster, according to people with knowledge of the decision. Mr. Apotheker served on a committee that proposed the five new directors to replace them, prompting sharp criticism from the shareholder watchdog Institutional Shareholder Services, which said H.P. had violated its own rules in allowing its chief executive to play a role in choosing board members who are supposed to be independent. (H.P.’s chairman, Ray Lane, denied any violation of rules, and told Bloomberg News that the new board members “aren’t buddies of Apotheker,” adding that “because Léo and I know the industry, it would be hard to pick any name we don’t know.” An H.P. spokeswoman said that the company drew praise from many corporate governance experts for shaking up the board.)

After taking time to study H.P.’s operations, Mr. Apotheker hosted a three-day conference, “HP Summit 2011,” beginning March 14 at the Yerba Buena Center for the Arts in San Francisco, a venue long associated with dazzling new product announcements from Apple. His presentation emphasized cloud computing and software, including WebOS, the highly regarded operating system H.P. gained when it acquired Palm Inc. under Mr. Hurd. Mr. Apotheker revealed that WebOS would be the future operating system in all the company’s computers and said that H.P. would be shipping 100 million devices using it. He said curiously little about H.P.’s vaunted printer or server divisions, which accounted for the bulk of the company’s profits.

Article source:

Speak Your Mind