HP's CEO carousel continues: Whitman officially in, Apotheker out

HP may be easier to fix than California---new CEO Meg Whitman ran to be governor---but it can be just as dysfunctional as its home state at times.
Written by Larry Dignan, Contributor

HP named former eBay chief Meg Whitman its eighth CEO since 1999 and second one in the last year. Whitman has to take on a massive to-do list, stop HP's slide, and either continue the company's current strategy or invent a new one.

In a statement, HP executive chairman Ray Lane said:

We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead. Meg is 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.

For her part, Whitman said:

I am honored and excited to lead HP. I believe HP matters – it matters to Silicon Valley, California, the country and the world.


All HP CEOs are all smiles---at first.

The move, which began to leak on Wednesday, ended the tenure of Leo Apotheker, who took over as CEO Nov. 1. Since Apotheker took over, HP has missed earnings three times and appears to be in a financial tailspin. Apotheker also orchestrated the pricey $10 billion purchase of Autonomy in an effort to bolster HP's software standing and plotted a spin-off of the PC unit. HP said it needed a CEO with "additional attributes to successfully execute on the company’s strategy."

Lane and Whitman indicated that HP's plan to spin off the PC unit and buy Autonomy remained in place. The call broke down like this:

Whitman has her work cut out. HP may be easier to fix than California---Whitman ran to be governor---but it can be just as dysfunctional as its home state at times.

For Whitman to succeed, she will have to address the following to-do list:

The to-do list for Whitman goes like this:

  • Decide what to do with the PC business. Should it stay or go?
  • Determine if HP’s software strategy is correct and figure out if Autonomy is the right fit.
  • Fix the services business and move it to higher margin deals. If that's not possible, spin off HP Services.
  • Figure out whether HP pulled the plug on the TouchPad too early.
  • Define HP.

On a conference call, Whitman said she is focused on improving operations and the financial picture for HP. Whitman doesn't have a lot of time to act. HP customers are weary from the non-stop turmoil---killing the TouchPad, a potential spin-off of the PC unit and executive turnover---and the company is vulnerable to a bevy of rivals ranging from Dell to Cisco to IBM to Oracle. Also see: Meg Whitman's ledger: Is she up to running HP?

Early reaction

The initial reaction to HP's move to name Whitman CEO was decidedly mixed. The consensus view is that Whitman has a lot to fix and not a lot of time.

Collins Stewart analyst Louis Miscioscia said in a research note:

Whitman has not run a company the size of HP, nor one focused on the enterprise, both of which are concerns that are made more important by the fact that HP is in need of a turnaround in many lines of business, not just a new strategic direction.

Sterne Agee analyst Shaw Wu noted:

While we believe she has proven to be a very capable manager helping grow eBay from a start-up into one of the largest internet companies, we think an ideal candidate for HPQ should have extensive experience in the enterprise market. In addition, we believe expertise in supply chain management would be helpful as well.

Forrester's Frank Gillett said:

HP’s strong customer brand is being damaged by the uncertainty of the Board and repeated CEO turmoil. The company is in a difficult strategic position. It might undo the planned PC spinout, but only if they value the supply chain synergies – the option to expand in mobility is gone. The Autonomy acquisition was a good strategic buy, but they may have overpaid. HP has strong enterprise data center technologies and infrastructure software, but undifferentiated enterprise services. The company has a long shot possibility to become a leader in enterprise cloud as an anchor of a larger ecosystem of products and services.

Barclays analyst Ben Reitzes said:

We continue to believe the disruption at HP could prove positive for other PC competitors such as Dell and Apple given potential for disruptions that include shelf space reductions and a lack of focus. We also note that IBM and Dell could potentially benefit from any disruptions at HP in terms of server sales (HP has #1 unit share worldwide) and NetApp and EMC could benefit in storage (HP is #4 in external storage revenue share worldwide). In terms of services, IBM may see some outsourcing wins vs. HP over time if dislocation persists.

Among the Enterprise Irregulars mailing list, HP watchers openly questioned the initial hiring of Apotheker. Since Apotheker only knew software, some quipped that HP hired a CEO that knew only 4 percent of the company's business. As noted by Jeff Nolan at Venture Chronicles, you could argue that Whitman knows zero percent of HP's business.

Wall Street seems to be thinking the same thing. HP shares on Wednesday spiked on word Apotheker was gone. On Thursday, shares almost gave back all of those gains. HP continues to bounce along a bottom. Here's the last year for HP shareholders.

Apotheker era ends

For Apotheker, the HP news equates to the second CEO disaster in his career. At SAP, Apotheker lasted less than a year. History repeated itself at HP.

It's unclear whether Apotheker was given much of a chance to carry out HP's strategy. He had to grow a software business, bolster services and shed low margin businesses. On the surface, that strategy makes sense.

However, Apotheker was clumsy with Wall Street and sometimes combative. He managed to consolidate power only to watch it be taken away. During HP's last conference call, Apotheker carried out a post mortem of the TouchPad and illustrated why HP was killing the tablet. In a nutshell, HP couldn't keep up. He said:

The tablet effect is real and sales of the TouchPad are not meeting our expectations…The velocity of change in the personal device marketplace continues to increase as the competitive landscape is growing increasingly more complex especially around the personal computing arena. There’s a clear secular movement in the consumer PC space. The impact of the economy has impacted consumer sales and the tablet effect is real and our TouchPads has not been gaining enough traction in the marketplace.

On HP's bread-and-butter businesses such as servers, Apotheker also said that Oracle was hurting business because it wasn't supporting the Itanium chip. Add it up and there were multiple holes for HP and Apotheker to plug and not enough time.

In addition, HP's board reportedly didn't get along with Apotheker following a trio of mixed quarters. Of course, it would have been nice if the board would have actually met him before HP brought him on board. Based on his employment agreement, Apotheker will get a nice consolation prize that will fluctuate based on whether he was officially terminated with or without cause.

Like Apotheker, Whitman may have a grace period, but chances are it won't last too long.


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