HP keen to move on after Hurd and Oracle crises

Fri, Jul 1, 2011, 01:00

The hardware maker’s new chief must convince customers and investors that all is going to plan

INDUSTRY ANALYSTS are cautiously optimistic that Hewlett Packard is back on track after a tempestuous year. However, the real test lies in the months ahead.

HP has been going through what might be sympathetically referred to as a “transitional period”.

July 2010 saw it riding high following its $1.2 billion acquisition of smartphone maker Palm. A month later, highly regarded chief executive Mark Hurd was forced out after an investigation found he had falsified expense reports.

Questions were raised about HP’s ability to survive in a rapidly changing environment.

Its increasingly acrimonious skirmishes with Oracle were also becoming an issue.

Hurd’s successor, Léo Apotheker, wanted to address such concerns as he took to the stage of the HP Discover event earlier this month. The Las Vegas conference was a rare chance for the new chief executive to address 10,000 of the business’s customers, and he was keen to stress that things were going to plan.

But Apotheker’s task is more complex than settling his customers’ nerves. First, he needs to satisfy investors that HP is going in the right direction financially. His predecessor had hit all the right notes in this regard, having shepherded the firm through five years of growth and earning a reputation for ruthless cost-cutting. Following Hurd’s exit, the company’s share price dropped 13 per cent and has fallen further since.

However, Hurd had neglected a number of important areas, for which the new management team must now make up ground.

“The challenge is managing the City’s expectations whilst changing and realigning to the things that are going to be 21st-century-and-beyond opportunities,” said Dave West, principal analyst at Forrester. He said the fear was that the firm would lose focus as a result of this pressure and make short-term decisions to appease investors.

Apotheker also needs to respond to challenges in the server market, where a company that was once HP’s closest partner has become its most bitter rival.

Until it entered the hardware market itself with its acquisition of Sun Microsystems, Oracle had focused on developing enterprise software solutions for the likes of HP servers. Since late 2009, however, the relationship between the two companies has been under increasing strain. Oracle chief executive Larry Ellison openly criticised HP for letting Hurd go and quickly made him his company’s president, a move that sparked a lawsuit from HP to “protect trade secrets”. HP recently returned to the courts, this time in response to Oracle’s decision to end support for Intel’s Itanium processors, which many HP products use.

The conflict was on full display in Las Vegas recently, mainly due to the adverts Oracle placed on taxis to trumpet its products’ alleged superiority. The centrepiece of the stunt was a van that drove around the city offering a “cash for clunkers” deal to anyone who traded in a HP server for a Sun alternative.

“HP has a wealth of hardware but what they’ve never really had and [have] relied on their partners for is software,” said Charles King, president and principal analyst at Pund-IT.

“And this situation with Oracle shows you how that sort of short-term strategy can bite you.”

HP seems to be as keenly aware of its blind spot on software as the analysts are. Indeed the hiring of Apotheker – formerly of SAP – was heavily motivated by his previous software experience.

“Software is more important than it’s ever been to HP’s portfolio,” said West. “They’ve got a CEO with a software background, he has brought in a lot of software people and that has been a significant change.”

HP was also keen to tout its cloud credentials at the Discover event, an area in which the company had appeared to have a somewhat disjointed approach.

While a lot of HP’s new strategy is now apparent, questions remain. West and King point to WebOS – the operating system acquired as part of the Palm deal.

“It was a hell of a bet, you’ve got to respect them for that,” said West. “But we’ll see how we execute on that and make it happen.”

He said the key would be how the company builds a developer ecosystem around the platform to encourage app development on it. There are also questions about HP’s ambitions in the tablet market. “As a colleague of mine says, it’s not a tablet market, it’s an iPad market,” said King.

“I think WebOS faces a lot of hurdles, and it’s important it doesn’t become a distraction. It’s certainly not the kind of thing you’d want to bet the entire farm on.”