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.