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 , 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
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
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.