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HP has made the bizarre decision to try to forfeit its position as the world's largest PC maker.  (Source: AP)

New CEO Léo Apotheker is trying yet again to outdo IBM and Oracle, something he failed at with his previous employer.  (Source: Reuters)

HP killed its webOS TouchPad tablet after only a month on the market.  (Source: HP)
"I didn't know there was such a thing as corporate suicide, but now we know that there is."

Tom Perkins knows a thing or two about Hewlett-Packard Comp. (HPQ).  Mr. Perkins worked as the head of research at HP and served three years on the company's board of directors, including serving as the board's director in 2006.  Despite resigning from that position as an ethical protest against the company's decision to spy on the phone records of his fellow board members to ferret out leaks to journalists (Mr. Perkins was never implicated in these leaks, but was upset about what he felt were unethical tactics by HP), he has remained very interested in the company.

I. HP's Baffling Direction

When it comes to new CEO Léo Apotheker plan to exit the consumer electronics market [
1][2], he's unequivocal -- "I didn't know there was such a thing as corporate suicide, but now we know that there is.  It's just astonishing."

HP's stock has sunk approximately 44 percent since July 2011.

Other electronics industry figures share Mr. Perkins' dismay at HP's implosion.  Comments one executive to The New York Times, "H.P. was the epicenter of Silicon Valley, geographically, culturally and historically. Is there any analogy for an institution so respected that has fallen so far so fast? I can’t think of one."

The electronics giant's decision to pick Mr. Apotheker 
baffled many as he had virtually no hardware experience.  Further, while CEO at German enterprise software giant SAP AG (ETR:SAP) his company was implicated in a plot to steal Oracle Corp.'s (ORCL) software, which ended up costing it $1.3B USD.  To make matters worse, under his tenure SAP failed to gain ground in the enterprise software market on International Business Machines, Inc. (IBM) and Oracle -- in fact, SAP had dropped him for this.

More amazing than his appointment, though, has been the willingness of the board and fellow executives to support Mr. Apotheker in retrying the same tactic that failed him at SAP -- an all-out push into enterprise software in an attempt to rival Oracle and IBM.

It's somewhat understandable why the board might back such a plan.  The enterprise software market has much higher profit margins than HP's consumer hardware market, and HP already has a decent foothold in this tempting marketplace.  But as Mr. Apotheker's own history shows, gaining market share in the cutthroat realm of business software sounds a lot easier on paper than it is in practice.

The board's willingness is even easier to understand, however, when you consider that Mr. Apotheker supervised a committee to appoint five new board members, a move that was blasted by the shareholder watchdog group Institutional Shareholder Services.  (Mr. Apotheker serves as director of HP's 14-member board.

II. Company Looks to Quit What It's Best At

While the friendly board has his back, analysts and fellow executives are appalled at 
HP's enormous bid for enterprise software firm Autonomy Corporation Plc. (LON:AU).  HP is offering $11.7B USD -- 11 times the Autonomy's annual revenue.  An executive comments, "Autonomy had been shopped everywhere. No one would pay 11 times revenue.""

A. M. Sacconaghi Jr., Bernstein Research’s senior analyst, commented, "It's a fantastically high price. It’s a very poor capital allocation decision. From our perspective, it's value-destroying."

HP's decision to kill its TouchPad project after only a month on the market and to ditch its steady consumer PC base -- which is 
number one in global and U.S. sales -- prompted an inglorious comparison from one executive.  They remark, "It was as if Alan Mulally left Boeing to join Ford as C.E.O., and announced six months later that Ford would be making airplane." (Instead, Mr. Mulally -- CEO of Boeing from 2001-2006 -- stuck with Ford's expertise -- making automobiles.)

III. Downhill Slide Started With Mark Hurd's Exit

The wild ride for HP began in 2010 when CEO Mark Hurd, a respected leader, was caught allegedly obfuscating from the board 
a relationship with a contractor (who happened to be a former adult actress to boot) and the ensuing sexual harassment suit.  Despite his steady performance at HP, the board wasted no time in giving Mr. Hurd the boot.  People close to the decision recall one board member telling Mr. Hurd, "We don’t need you."

Two board members actively resisted the ouster, but were overruled.  They resigned in protest.

Meanwhile Mr. Hurd 
jumped shipped to Oracle, which was headed by his long-time friend Larry Ellison.  Serving as one of two co-presidents, Mr. Hurd now appears to have a bright future at the wildly successful enterprise computing giant.

Mr. Ellison admonished HP for letting their veteran leader go, stating, "The H.P. 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."

The statement, which at the time was dismissed as simply more brash remarks from the outspoken CEO, now seems somewhat prophetic.  

Some hold out hope that HP will see the light and decline dropping its "slow-growth"/"low margin" businesses.  States Mr. Sacconaghi, "[HP is] not rotten at the core. It's in a series of businesses with strong competitive positions albeit in slow-growth markets. It's the single cheapest technology stock in the S.& P. 500. At some point something has to go right: improved performance, successful spinouts or a change in leadership."

In other words HP may be near the edge, but it hasn't driven off quite yet.



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This article is over a month old, voting and posting comments is disabled

By tayb on 8/29/2011 10:26:07 PM , Rating: 0
To this day I cannot figure out why people resign as a form of protest. Swallow your pride and realize that your objections can be heard much louder and much clearer as an active member of the board than they can be from a grumbling ex-board member. Maybe some of this stuff wouldn't have happened if so many seemingly intelligent men or women hasn't resigned from HP in protest.

Now here they are blasting this move. Well, I don't think you have a right to blast it considering you quit your post that was supposed to be STOPPING these sorts of things.




By someguy123 on 8/29/2011 11:55:13 PM , Rating: 2
I'm pretty sure the whole concept of resigning under protest is that they've exhausted any possibility of internal influence, so they choose to leave instead of drowning in the sinking ship.

If anything I'd say it would be more childish for them to comment on public without resigning first, as an active member of the board making such comments would tarnish their reputation far greater, to the point of being slander.


By mindless1 on 9/1/2011 10:16:49 PM , Rating: 2
Sometimes you just don't want to spend any more time around a bunch of idiots and don't want to be associated with their actions either.


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