Next HP CEO needs to deliver growth and vision not just cost cuts

Hewlett-Packard under Mark Hurd, who resigned Friday, was a lean, mean operational machine. HP could cut costs and squeeze out profit margins with the best of them. The next CEO, however, is going to have to deliver organic growth and vision.
Written by Larry Dignan, Contributor on

Wanted: Chief executive for technology giant, known to some as a megacap. This executive will need strategic thinking and find ways to grow into new markets. Financial discipline also required, but most of all we're looking for vision, strategic insight and potential game changing innovation.

That could be HP's pitch for its next CEO.

Hewlett-Packard under Mark Hurd, who resigned Friday, was a lean, mean operational machine. HP could cut costs and squeeze out profit margins with the best of them. The next CEO, however, is going to have to show that HP can grow organically sans acquisitions and cost cuts.

Also: HP CEO Mark Hurd resigns amid sexual harassment investigation; Company raises full year guidance

Analysts and industry watchers on the Enterprise Irregular mailing list all agree on one thing about HP. Hurd was a master at operations and being efficient. He wasn't a big innova
tor and strategic thinker. Like a team that changes coaches, the new guy is often the opposite of the last manager. Disciplinarians yield to player's coaches. In this case, Hurd, the operations guy, is likely to yield to someone more visionary.

There are also other significant questions. Was this Hurd departure really about conduct and a sexual harassment suit? Or was it really about swapping coaches at HP? The more you think about the Hurd exit the more you wonder whether the board wanted to swap out the operational guy for a more visionary type.

Wall Street analysts on Monday were busy handicapping HP's prospects in light of the Hurd departure. The key takeaways:

HP's valuation after hours Friday was a 19 percent discount to IBM. That gap is the largest since the Carly Fiorina error era.

Deutsche Bank analyst Chris Whitmore said HP will remain cheap relative to its peers:

We expect HP’s valuation to remain under pressure amidst uncertainty and concerns surrounding other potential misgivings, a lack of visibility on leadership succession and a potential strategy change with new management. We believe many existing investors own HP for management’s cost cutting acumen and the ability to deliver consistent non-GAAP EPS. This thesis has to be questioned in light of the management change.

Hurd's departure could be a blessing in disguise. Barclays Capital analyst Ben Reitzes said:

We believe Mark Hurd was a great cost cutter and we are disappointed that he is gone, but he was having difficulty with investors in “handing off” the HP story to one of growth in a world that faces challenges with the movement to cloud computing.

HP needs to talk strategy and deliver a growth story at its Sept. 28 analyst meeting.

Investors were going sour on HP's PC business and plans for the consumer market, the strategy with EDS and a constant restructuring go-round. Business looks good for HP for now. HP's outlook is roughly on par with expectations although the fourth quarter view was light relative to what some analysts expected.

HP has internal and external candidates that would fit. As handicapped Friday, there are a bevy of possibilities to replace Hurd. Internally, Ann Livermore and Todd Bradley are the leading candidates, say Wall Street analysts. JMP analyst Douglas Ireland said:

Bradley joined HP in 2005 and is executive vice president of HP’s $42 billion Personal Systems Group, including personal computers and mobile devices. He was previously CEO of Palm, and we believe he could possibly look to leave HP if not given the CEO role.

Add it up and what's really needed at HP right now is some vision. The problem is that HP also has to integrate a few big acquisitions such as Palm and 3Com. Toss in questions about the services unit---does HP really get this business process outsourcing gig?---and there are a lot of outstanding issues.

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