‘We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead,’ says board

New HP CEO Whitman must regain partner confidence

Alarmed at negative comments from the financial community about its strategy, a failed tablet and plummeting stock, the board of Hewlett-Packard Co. (NYSE: HPQ) has replaced CEO Leo Apotheker with former eBay head Meg Whitman.

The change, aimed at turning around the image of what many felt was a leading IT company, marks the third chief executive for the company in four years.

Although the board — of which Whitman was a member — approved Apotheker’s plan shift the company into primarily a software and services company by spending US$10 billion on a British infrastructure software vendor and to ruminate publicly about spinning off its popular PC division, the CEO took the fall.

To give the impression the board is in control it also named former Oracle Corp. president Ray Lane to executive chairman of the board from his post as non-executive chair, and promised a new independent director will be appointed promptly.

Concern about HP’s strategy erupted Aug. 18 when the company announced it buying Autonomy Corp. plc, was exploring alternatives for its Personal Systems Group (which makes computers and tablets) and that it would discontinue production of its webOS-powered TouchPad tablet and smart phones.

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Financial and industry analysts immediately wondered which way the company was going. While on the surface it seemed that HP was following IBM Corp. into services the price for Autonomy seemed to some to be excessive, the casual way it seemed to toss the successful PC division into the air was disconcerting and the lack of consumer interest in the TouchPad at a time when consumers are eagerly buying tablets was disappointing.

Still, there was logic in some decisions: PCs are a commodity and margins are declining, and when it comes to tablets consumers are chosing ones using well-developed operating systems like Apple Inc.’s iOS, running on its iPads and Google’s Android because of their extensive application libraries. As a newcomer, webOS was far behind. HP’s only consolation is that when it conducted a fire sale, TouchPads flew off the shelves.

“I think it will go a long way to easing some of the confidence in the market, especially potential HP clients who have a large investment in a number of HP technologies,” Paul Edwards, research director at London, Ont.-based Info-Tech Research Group‘s Indaba division, said of Whitman’s appointment.

“It will also go along way easing stock jitters. Basically it’s a signal that what was going around is not the way the board members want the company to be perceived by the market.”

Apotheker’s decisions had logic behind them, he said. But “it was a bit of a mistake to talk of selling the PC business when they are a market leader, even though it may not be a bad decision because these are products that have declining margins.” Still, he added, it didn’t do much for business customer or consumer confidence.

Regaining partner confidence will also need to be a top priority for Whitman and HP, added Edwards. HP’s partners drive a large portion of the vendor’s revenue and are crucial to the company’s success, and Edwards said there has been much confusion in the channel community around HP’s direction and some of the decisions taken under Apotheker.

“I think a lot of the partners have been wondering what’s happening with the company and what’s going to happen to the business and they areas partners have been investing in (with HP),” said Edwards. “It’s about clarity and direction. Partners are a huge stakeholder group for HP and they would expect to be getting more about the execution and the strategy of HP going forward, because they have to consider their own business.”

Frank Gillett, vice-president and principal analyst at Forrester Research, was among those who wondered about Whitman’s credentials for running HP. “It sure isn’t her enterprise experience,” he said in an interview.

“When you look at their core businesses, they’re still making money … I think the company’s going to be fine. The real question is whether the board and the new CEO can stabilize things.”

It’s the third CEO been kicked out with a different board each time. “It’s more than a run of bad luck. There’s something that needs to be fixed.”

“I’m not crazy about the Meg Whitman appointment,” admitted Zeus Kerravala, a senior vice-president at research firm Yankee Group. “I would think they’d go after someone with more enterprise experience.”

He respects the work she did at eBay, but point out it’s not the same size as HP. Business customers will have questions about her ability to serve them, he said.

On the other hand “HP is such a mess right now that most enterprise customers will look at this with a sceptical eye but hold out some cautious optimism this might make HP the giant company it once was.”

“I think the first 90 days of her tenure will have a lot to do with how HP is perceived.”

When rumours began in the last 24 hours that Whitman would be the new CEO, HP stock bounced up. How long that will last is a question. Edwards wonders if it was merely relief that Apothker would be one. However, he added, the market will want to know her plans. “I think she’s a little bit of an unknown quantity from a leadership standpoint,” Edwards said.

In a press statement Lane called Whitman “a technology visionary with a proven track record of execution. She is a strong communicator who is customer focused with deep leadership capabilities. Furthermore, as a member of HP’s board of directors for the past eight months, Meg has a solid understanding of our products and markets.”

Later in a conference call with financial analysts, Lane and Whitman stood behind the Aug. 18 announcements, leaving no room on strategy between them and Apotheker. In Lane said one of the goals the board gave Apotheker was to develop new strategy.

However, Lane said he saw that under Apotheker “we didn’t see an executive team that was working together,” an an inability to deliver “clear, concise” messages to investors and the press on the new strategy. Most important, he added, was Apotheker’s inability “to get down deep in the business and understand the dynamics going on in the business.”

By contrast Whitman’s strongest attributes, he said, are leadership, team play, communications and operating execution. As for her experience running a company with large sales to enterprises, Lane cited her skill at running eBay, which is a large buyer of servers and software.

As for suggestions that buying Autonomy and moving deeper into services will be a radical change of direction for HP, Lane was brusk. There won’t be a “transforming” of the company, he said, noting it will still have a $120 billion server, networking and printer business.

For her part Whitman said that as CEO she will review the strategy, “but from what I know now I think the strategy is right.” She promised a decision on the PC division will be made before the end of the year.

She also vowed under her HP will continue to invest in the server, printer and networking businesses.

One analyst suggested that the dismissal of Apotheker after only 11 months in the chair indicated a failure by the board. How, he asked can investors have confidence in its latest decision? It’s a different board, Lane replied, noting that five new board members have been added since January.

Gartner vice-president and data centre infrastructure analyst Mark Fabbi said it was good to see a definative change and not the appointment of an interim CEO. HP knows it has to build a strong executive team, re-commit to the hardware business and support its staff. “Still to be seen is whether they can pull it off,” he added in an email. “HP recently has been less than the sum of its parts. Can renewed focus and investment on their core markets, combined with a necessary strategy of doing more make enough of a difference?

“The clearly need to focus on execution over the next two to three quarters to re-establish some trust and confidence.”

– With files from Jeff Jedras.

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