Where exactly HP is going, we’re not exactly sure. It was just 9 months ago when we blogged about Hurd leaving and a new CEO, Leo Apothecker ex SAP, coming in. And in this short period of time, he’s convinced the Board to get out of the PC business (a third of all revenue), get out of the Tablet market AND the smartphone market and spend over $10 Billion on a search software company. Oh, and the company's stock has lost more than 40 percent in value. One thing for sure- Apothecker can certainly make decisions. Whether investors agree on his direction is another matter. And exactly where is this direction taking HP?
First some background. HP has struggled with single-digit PC margins for a while now and they tried to make a strong move into the tablet space. For some, single digit margins are ok, but for high tech players like HP, not. And with Apple almost dominating the Tablet space, the whole dynamics of PC versus Notebook versus Tablets began changing at an amazing speed. As Mr. Apothecker recently commented:
Consumers are changing the use of their PC. The tablet effect is real and sales of the TouchPad are not meeting our expectations…The velocity of change in the personal device marketplace continues to increase as the competitive landscape is growing increasingly more complex especially around the personal computing arena.
HP’s dramatic change of direction highlights just how turbulent the industry has become. In the end, keeping up with the PC business and trying to compete with the TouchPad became a dangerous distraction as HP tried to retool it enterprise services business. The purchase of the search software Autonomy is a competitive play in the enterprise space. The purchase is aimed at positioning HP to take advantage of business migration to so-called cloud services, as more and more companies pay for software that can be accessed through the Internet from anywhere in the world.
Even this bet is far from certain. The company does have a well-established base in the enterprise sector on multiple fronts, notably with its printing division. However many cloud customers are likely to wait and see how successful HP’s latest overhaul is before entrusting the company with their data and software storage needs. By discontinuing its tablet computer and smartphone products and selling off its PC division, HP is going to need to fill some of the enterprise holes and fast.
HP still has huge gaps compared to its competitors, including collaboration software, business applications, analytics, middleware, and database. I’m not saying that HP isn’t good already; but they need more if they want to be a ‘big’ player in enterprise to the likes of their opponents. In a recent blog by Peter Yared, VP & GM at Webtrends Social, he suggested a good fit to be SAP. A merger of SAP (valued at $60 billion) and HP (valued at $49 billion) would create a $109 billion behemoth capable of competing with IBM ($188 billion), Oracle ($125 billion) and Microsoft ($201 billion). This would be a huge undertaking to master.
At best, investors appear mixed on Mr. Apotheker’s strategy and exactly what it is. He has overhauled his executive ranks with at least 10 executive vice presidents and senior vice presidents leaving since he joined the company in November. This is no surprise with any new commander but his new lieutenants are just basically getting their ducks in a row now. It’s going to take a few more months of positioning an acquisitions to see the full line of battle that he is steering HP towards. God speed- the market is fast and furious.
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