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Léo Apotheker's legacy continues to haunt troubled PC maker

It's been a hard fall from grace for troubled personal computer giant Hewlett-Packard Comp. (HPQ).  After the board booted successful CEO Mark Hurd for an illicit office affair with a marketing contractor-cum-ex-adult film star, it made the disastrous decision to hire Léo Apotheker, an executive with a troubled past and little experience in the America market.

I. Léo Apotheker: The Disaster That Keeps on Giving

Even as current CEO Meg Whitman (formerly CEO of eBay, Inc. (EBAY) during its formative years) tries to right the ship with record layoffs, HP has shaken investor confidence with a dire Q1 earnings forecast, a forecast that once more dredges up the ugly legacy of Mr. Apotheker.

Mr. Apotheker came to HP shortly after being essentially fired from German enterprise software giant SAP AG (ETR:SAP).  He was fired after only a year as CEO on allegations that he turned a blind eye to software theft, was belligerent to trade unions, and generally mismanaged the company's finances.

Nonetheless, HP -- perhaps eyeing Mr. Apotheker's more successful years at SAP before his ascent to its top post -- took the plunge, recruiting the ousted German CEO, setting aside the large culture gap and his poor track record.  The board then watched idly as Mr. Apotheker made plans to spin off HP's core consumer PC business and acquire UK software giant Autonomy Corp. plc. for $10.3B USD in 2011.  Mr. Apotheker also triggered HP's exit from the mobile device market, shuttering the product line of the recently acquired Palm unit.

Meg Whitman
Meg Whitman has been unable to salvage HP's bottom line, thus far.
[Image Source: Fortune MPW]

Those decisions led one former board chairman to suggest HP was trying to "commit corporate suicide" and led to a lawsuit from outraged shareholders.  The criticism eventually moved the sluggish board to react; Mr. Apotheker was outed from the CEO spot at a major tech company for the second time in two years.

II. A $8.8B Hit on "Improprieties"

But his legacy lives on.

In its earnings guidance HP announced that it expects to take a massive $8.8B USD write-down due to "accounting improprieties".  The guidance reads:

The charge relates to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy that occurred prior to HP's acquisition of Autonomy and the trading value of HP stock during the period preceding the recording of the charge. In the third quarter of fiscal 2012, HP recorded an impairment charge for the goodwill associated with its Services segment following an impairment review driven by, among other things, the trading value of HP stock during the period preceding the recording of the charge, market conditions and business trends within that segment.

Analysts had been expecting around $0.87 USD/share earnings.  With the massive write-down, EPS are expected to dip to between $0.68 and $0.71 USD/share.

Autonomy poster
This Autonomy poster seems rather ironic in retrospect, considering the software company is alleged to have duped HP out of billions via bad accounting. [Image Source: Autonomy]

As the company approaches its fiscal Q1 2013, the holidays bring little joy to HP.  The company looks set to lose its top spot to the Hong Kong-based Lenovo Group, Ltd. (HKG:0992).  Gartner Inc.'s (IT) numbers indicated that Lenovo already passed HP last quarter, although the other major reporting agency, the IDC Group claimed HP clung to a narrow lead.  Given the trends, though, it is expected Lenovo will be well ahead of HP in unit sales for calendar Q4 2012 (fiscal Q1 2013 for HP).

HP shares have plunged 10 percent in pre-market trading.  Analysts were already pessimistic, as the previous earnings guidance was consider weak.  If that one was consider weak, though, this one can only be regarded as an utter disaster for the Palo Alto-based hardware veteran.

Source: HP on MarketWire

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HP KNEW what they were getting....
By rdhood on 11/20/2012 10:20:28 AM , Rating: 5
When HP bought Compaq, detractors said "you are paying way too much". A couple years later, HP says, "we paid too much".

When HP bought Autonomy, detractors said, "you are paying 2-3x too much!"

18 months later, HP says, "we paid too much".

Or, how about a billion for Palm, which has now been put to pasture?

In just those purchases in the last 10ish years, HP gave away (overpaid) nearly $20 billion(out of $30 billion in purchases) of shareholder value on businesses that did not return value. This isn't just Leo A's problem. This is the problem of every CEO for the last dozen years. Instead of investing in R&D (30 billion buys a LOT of R&D), HP has tried to purchase their way to the top. In the meantime, HP has laid off almost 100,000 folks due to poor management, has bet their company on Itanium, has potentially lost Oracle has a DB provider, has failed completely in consumer electronics, phones, tablets.

There is nothing to like about this company.

RE: HP KNEW what they were getting....
By jemix on 11/20/2012 10:28:32 AM , Rating: 2
EMC has been able to successfully 'purchase their way to the top', but they are also investing heavily on internal R&D. EMC is making smart bets - for the most part.

By AllYourBaseAreBelong2Us on 11/20/2012 12:23:00 PM , Rating: 2
Surely, Leo was a disaster but, don't forget that it was Mark Hurd who started the shopping spree after he realized that cutting R&D cost this much had just killed HP's innovation for good. Hurd basically burned the furniture and tried to fixed his screw up with acquisitions. He bought EDS for $13.9 billions in 2008 (overpaid 8 billions for it) and then in 2010 he bought Palm for 1.2 Billions right before getting fired for misconduct.

By jamawass on 11/20/2012 2:53:55 PM , Rating: 4
Hurd correctly foresaw the future of computing as being in the mobile space but was ousted before he could fully realise that vision. Apothekar starved Palm of support, then shut it down after it failed instead of investing in it. At the time I always thought the Autonomy was overvalued, glad to have been proven right. It's a shame a fraction of that money wasn't used to fix webOS and Palm. HP are now paying for that in more ways than one, shrinking PC market and reliance on a hardware competitor (M$) for operating software.

RE: HP KNEW what they were getting....
By fic2 on 11/20/2012 12:44:47 PM , Rating: 3
Hmmm, who in the power ranks at HP has been there 10+ years? Sounds like they have a piss poor board of directors to me.

RE: HP KNEW what they were getting....
By retrospooty on 11/20/2012 12:57:19 PM , Rating: 3
LOL... The sad thing is they bought Palm for a billion and gave up on it before they even tried to build it into a better platform.

I still say, WebOS, on todays hardware with speed tweaks ala Jellybean would easily be the best mobile OS available. The UI blew Android IOS and WP8 away. Palm nver could get hardware right and HP just dumbed it out of existence.

RE: HP KNEW what they were getting....
By semo on 11/21/2012 2:22:24 AM , Rating: 2
Their 3Com and Indigo purchases turned out well. Not all risks pay off and it seems that their biggest bets turned out the worst.

RE: HP KNEW what they were getting....
By Argon18 on 11/21/2012 11:51:31 AM , Rating: 2
As a former HP employee of many years, I can say with authority that you have hit the nail on the head. Ever since about 2000, (or Carly Fiorina if you measure by CEO) HP has been in steady decline. HP is a circus of mis-management.

They have killed many brilliant technologies (DEC Alpha) in favor of turds (Itanium), acquired and destroyed dozens of profitable businesses, and have laid off tens of thousands of workers.

It's quite a feat really, to have done so much damage to the IT industry in a mere dozen years. HP was once a bastion of technology. Today it's a hollow shell that adds no value, and ruins everything it touches. Based on the steady decline of HPQ stock price, it's only a matter of time before they are acquired by IBM, Oracle, or some un-named Chinese investors. A sad end to what was once an American icon.

By Luticus on 11/21/2012 2:04:49 PM , Rating: 2
Today it's a hollow shell that adds no value, and ruins everything it touches.

They must be in cahoots with EA :-)

By michael67 on 11/23/2012 11:31:30 AM , Rating: 2
Autonomy former boss agrees with you.

He says that mismanagement, that caused a brain drain, ruined the company in one year, by eider firing or running out the people that made company what it was worth.

Bad Google translate of a dutch article ware he makes his claims:

I remember 10 years a go when i called for help setting up a then all ready old HP LaserJet 4+ up for the network.

The network adapter was not the essayist to configure, so when i called the guy or girl at the first line could not help me, but said she would connect me with some one from the second line that ware more knowledgeable.
The guy at the second line could also not help me, but he transferred me to some one else, "The dinosaur", and that guy knew what he was talking about, but it still took about 30 min to set up the printer, as the NIC in it needed to be reset, but during waiting times, we talked, and he was also saying that he was leaving as he did not like the new HP, and that was over 10 years ago.

Seriously i don't get it, why do CEOs of big companies not understand that a brain drain is the worse thing you can do to any company.

By Argon18 on 11/21/2012 11:55:14 AM , Rating: 2
Don't forget the acquisition of EDS for $13.9 Billion. That was an overpriced mistake as well. HP already had an army of field service people. Why did they need EDS? They didn't. That's why so many people were laid off after that acquisition. People were abandoning HP, and instead of fixing their problems, HP bought their way into more market share, by acquiring the EDS service portfolio. That works for showing shot-term growth and profitability, but it's a failing strategy long term.

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