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By | Gavin Clarke 7th October 2014 15:34

Leading like Mad Leo: HP's Whitman rolls out Apotheker's PC plan

The executioner turns gambler as HP's PCs are set to go

There’s something in the water at Hewlett-Packard. No, I’m not referring to the "HP Way", that pseudo-Victorian philanthropic work creed.

It’s the propensity for those running this tech giant to make really big bets — multi-billion-dollar rolls of the dice have become standard operating procedure.

Three of HP’s most recent chiefs have taken huge bets calculated to transform the company.

Mark Hurd spent $13.9bn buying the once number-two services company EDS to create what Hurd promised would be “a leading force in global IT services".

Before him, Carly Fiorina splashed out $25bn on PC and server rival Compaq in 2001 to create an even bigger, streamlined PC maker operating on economies of scale.

Fiorina's predecessor, Lewis Platt, had spun out HP’s testing and measurement products to focus purely on PCs, creating Agilent, which floated in 1999 for $2.1bn.

Not all these gambles paid off.

Compaq became just another HP brand as Fiorina laid off 15,000 staff. The combined companies lost their number-one position to Dell, are now losing to Lenovo, and the move failed to boost HP's stock price – flat until 2005. Her combined PC dream is currently a falling $32bn PC franchise.

Hurd’s vision was compromised by his management style: HP wrote off $8bn on the EDS deal in 2012. Why? Hurd squandered the EDS asset through his laying off 24,600 staff as part of a corporate-wide restructuring intended to produce “efficiencies”, but it just saw the EDS brains and practitioners go. It was a move that confirmed IBM’s strong position in services.

Now we have CEO Meg Whitman. She’s re-drawing HP, breaking it into two pieces – getting rid of PCs and printers while saving the enterprise business.

She’s also indulging in that tradition of axe swinging: chopping away 55,000 of 317,000 HP staff.

The change is late into her tenure and unexpected.

She was hired in September 2011 by HP to turn the company around pretty much as was – as a diversified PC, systems and software operation.

Her job Number One was “execution” – Valley speak for sales based on the plan. According to executive chairman of the board Ray Lane at the time:

“We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead. Meg is a technology visionary with a proven track record of execution.”

Whitman is not a risk-taker by nature, however, as evidenced by her time as eBay’s CEO.

The world’s mega auction site wasn’t her idea (that was Pierre Omidyar in 1995) and she became CEO in 1998, steadily growing the internet business.

The plan is all the more suspect, given flogging the PC business was actually the idea of her short-lived processor, Leo Apotheker.

Shock split

Apotheker’s announcement that he was canning HP’s PC business caused a storm. He was eventually axed by the board, in less than a year, in part because the signature PCs and printers continued to fall. He was not “executing.”

Whitman’s plan for HP had been for a turnaround by 2016 and there was never any suggestion that the PC or the printer businesses were going. Far from it: in February 2013 Whitman denied that there was any plan to sell the PC unit.

Rather, Whitman’s plan had been for revenue in line with US GDP by 2016 with operating profit growing faster than revenue.

The timing of the split is telling, coming weeks before HP announces full-year results. The third-quarter was looking reasonably positive. What did Whitman see?

Now, HP says the split will give each entity “enhanced independence, focus, financial resources and flexibility to adapt quickly to market and customer dynamics.”

Her new bet is odd.

The timing is off, given sales of PCs were actually up in HP’s latest quarter – reported in August – suggesting the worst of the PC slump is over.

In the company’s most recent, third quarter, enterprise — the engine of the new company soon to be headed by Whitman — saw sales down in services, business-critical systems and software. Just networking and x86 servers were up.

The bet is odd: HP is going into this new enterprise market against powerful incumbents and motivated challengers.

It’s going into x86 servers and systems against Dell, a de facto standard in hyper-scale data centres in recent years, and Lenovo – aggressive on price and energised in the belief it can turn IBM’s x86 server business into a fat and profitable cash cow.

Ah, but there's software and cloud. These are fast growing and rich in margins for others, but they are still small change at HP and it’ll be years before income from these can be counted in billions of dollars.

Whitman will be more reliant than ever on her juniors. She hails from an internet background and has relied on her experienced execs to make and sell the systems.

The question will be just how many subordinates are among the 55,000 who get cut, and whether their loss will mean a repeat of Hurd’s devastating EDS cull.

Whitman has now firmly secured her place in HP’s history as the latest CEO to shake up one of Silicon Valley’s oldest and best-known names. The question is whether or not her break-up plan is also consigned to the same fate as those big ideas of Hurd and Fiorina. ®

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