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You don’t see this much bad news in one place very often. Hewlett Packard chief executive Leo Apotheker just laid it out: The Palm OS is a flop and will be killed; the personal computer business needs independence, a sale or arms-length operation, if it is to continue; the cash cow of printers won’t be able to carry HP as it spends huge money buying value-added software and services; changing this company will cause a lot of turmoil and take a long time.
About the only bummer missing was something about massive layoffs. But then, that is implicit in some of the other news – the Palm shutdown aside, you don’t find a buyer for a PC business who wants to ADD staff. The end of Web OS will kill jobs in HP that aren’t immediately tied to that business, too.
The stock fell 6% today as some of this information oozed out. Now it is down another 8% in after-hours trading. HP shares are about where they were in July 2005 – it didn’t get this bad during the financial crisis. It trades at six times earnings, which would be a steal if HP had all the bad news behind it.
It is worth noting: Apotheker is probably doing exactly what the board hired him to do. It is just much, much harder than probably anyone thought. And in many ways the challenge of changing HP comes at a cost, for now, of owning an incoherent company. New parts are coming up as old ones fade. This changes the company’s financial model, and gives Wall Street, which only likes what it can map, much to dislike.
Apotheker offered several reasons for his bad day, all telling about HP and the world. Consumers are turning to tablets, and away from PCs, so the business needs to act quickly and independent of other company interests. The Palm computing Web OS, a supposed challenger to Apple’s and Google’s operating systems, was rejected by the market. This destroying HP’s hope for a grand consumer/business, mobile/cloud comprehensive technology offering, and wiped out whatever developer community it had for the product, inside HP and out. This will likely remake how HP deploys resources in a lot of the back end of its servers, storage, and management software business.
Japan’s tsunami affected printer supplies and sales, robbing HP of its age-old cash cow at a critical time. To a lesser extent, Oracle Corp.’s decision last March to stop developing software for HP’s Itanium server is another blow (one that will probably get settled in court, but it has done its damage). Finally, Building out the critical services business that Apotheker wants, however, is taking a long time. HP warned about that in May but who on the Street remembers that far back?
Not all of this, possibly even most of this, is Apotheker’s fault. The question might be, was he wrong to be so ambitious for where he wanted to take HP?
To which the counter is, Given where the world is going, what were his other choices? Presumably the Japanese issue will get resolved for printing – though in a time when even airline passes can appear on phones, not paper, this division may have its own problems. Likewise the Oracle/Itanium issue, though it has done its damage. It is the other things that make HP (at least temporarily) incoherent, as it looks for a place in the world ahead.
We he made his first public statements last March Apotheker said he intended to make HP a cloud-based services company, with a strong base of analytic software. The acquisition of Vertica announced then was hardly enough to differentiate the company, and Apotheker said there would be other, big acquisitions. Autonomy, at $11 billion, has a strong market position and customer base.
Oddly, though this is supposed to be part of the new core mission, Autonomy is going to be run as a separate company. That may be a holding pattern; Autonomy ran into trouble last fall when a former insider wrote a bank report on the company’s poor internal management.
I spoke with Autonomy chief Mike Lynch in late March about how well Autonomy could handle pattern-finding in the cloud-based Internet age. Though apparently some $900 million or so richer with this deal, Lynch will remain in charge. That aside, at his coming out party Apotheker also talked about Autonomy’s success in transitioning to cloud computing- something HP needs inside its own business.
Yet Apotheker talked about Autonomy and HP in the context of “synergy.” Once Apotheker fixes HP’s own services salesforce the two may join closer, but that is part of HP’s journey ahead. It is proceeding, based on an aside in the call, by the elevation of former IBM executive John Visentin to HP’s executive council as the head of Enterprise Services, replacing Ann Livermore.
Moving the PC business out of HP – or at least figuring out its place in the world – is another key job. Dell has the same problem with the future of basic computing for consumers (and in its depressing earnings call yesterday managed a dig at HP. But at HP this also means reworking how decisions get made at the executive council, where both PCs and printers are represented.
PCs and printers are separate parts of HP, but are closely coupled business at the retail level. Lining up their interests is a challenge Apotheker also has to work through, and must be aware of after the Web OS debacle. As we said here earlier, the TouchPad was hampered in part by a seeming desire within HP to present it as a new product that didn’t interfere with the PC business. Something like Microsoft’s problem in building anything that undermines Windows.
Apotheker has a vision of the world that is coherent and, to the minds of many, true: Many small mobile and desktop devices at the edge, connected to a core with huge amounts of computing, data storage, data analysis, and communication, operating in real time. He saw a way HP could be part of all of this. That appears to have failed, with the shedding of Web OS and the PC business – he is losing the edge. As he continues forward, he has to see if he can make HP coherent at the core.
