The sharks are circling HP -- can anyone save it?

Hewlett-Packard is running out of options to save its business; if it's to survive, CEO Léo Apotheker and the board must go

The sharks are circling Hewlett-Packard. Last week's stunning twin announcements that it is giving up on WebOS devices and may spin off its PC unit have left buckets of blood in the water. If something radical doesn't happen soon, a one-time gem of Silicon Valley could wind up in someone's belly. Thousands of employees, not to mention shareholders, will be the victims. Customers -- I'm talking to you, readers -- likely won't fare well either.

There's already talk on Wall Street that HP's valuation has plunged so much in the last week -- 20 percent, or about $10 billion (that's billion with a "b") -- that it could become a tasty morsel for a takeover artist or be sold off piece by piece.

Don't believe me? Listen to a man who helps manage a $9.5 billion fund that holds shares of HP. "For the right company, it probably would make sense for someone to come in and scoop it up. Someone could come and at least buy pieces of the firm," Michael Mullaney of Fiduciary Trust told Bloomberg News. A company that was a crown jewel of Silicon Valley now appears to be a "rudderless ship."

Harsh? Mullaney was being nice. "Valuation? What valuation?" asked Trip Chowdhry, managing director of Global Equities. "You can only talk about valuation if management has a clue, the board has its act together, the products address customer needs, and the customers are taken care of," he told me.

Chowdhry's prescription -- one I endorse -- is radical and immediate surgery. "Fire each and every top executive, including CEO Léo Apotheker; get rid of the board, including Chairman Ray Lane; and bring in people from startups who are aggressive and hungry to win."

Three CEOs, three whopping failures
Apotheker is the third in a line of failed Hewlett Packard CEOs, so it's not fair to blame him for all of the company's troubles. After all, the PC unit he wants to spin off is only as large as it is because former CEO Carly Fiorina broke the bank buying Compaq, one of the worst mega-acquisitions every made by a technology company.

Then there was Mark Hurd, Fiorina's replacement and Apotheker's predecessor. Sure, he was fired ostensibly because he couldn't keep his pants on and fudged an expense report to keep it secret. But his real sin was that his basic management strategy was only to fire people and trim expenses. That works for a while because it boosts short-term earnings, but as a long-term strategy for growth it's a total bust.

As I said, you can't blame Apotheker for the past, but you can blame the board. Among its other puzzling mistakes, why did it hire Apotheker? His record at SAP was not very good, and he has little firsthand experience in the hardware business, which might explain his rush to ditch it.

Apotheker's breathtaking mistakes
When it comes to more recent moves, the list of Apotheker's mistakes is breathtaking. Consider the $11 billion planned purchase of Autonomy. "If you spend that money, it should be for applications that are mission-critical, that will stop the company if they don't run. Autonomy's software is nice to have, but not at all mission critical," Chowdhry says.

Neither I nor my InfoWorld colleagues were ever big fans of WebOS, but others were, and it does seem that HP's mobile strategy had a chance to succeed. But when the TouchPad flopped, Apotheker and the board panicked. Was the TouchPad the shortest-lived product ever launched by a major company? Even Microsoft's Bob lasted more than three months; the TouchPad lasted six weeks. I mean, come on!

Now Apotheher says WebOS isn't dead, but that HP can't make decent devices to run it on. (More precisely, it couldn't ensure the firm assembling the actual hardware under contract delivered a decent product.) That's an unconvincing sales pitch for potential WebOS licensees and any HP groups figuring out whether to adapt WebOS for something like printers. And it's an amazing admission for a company that makes (or, rather, has made for it) so much hardware.

Meanwhile, Apotheker is talking about spinning off the PC unit, which is, of course, an admission that the purchase of Compaq was a waste of $25 billion and thousands of lost jobs. Maybe he has reason to do so, but how about exploring an exit strategy before you tell Wall Street you're about to dump a significant segment of your business?

Think of how much value he knocked off the division by telegraphing his punch. And don't believe him when he says the SEC made him do it. Companies explore strategic moves all the time without running afoul of disclosure rules.

The Palm acquisition now appears to be another waste of money -- $1.2 billion, to be exact. Could it have been handled any worse? Even before Palm was acquired, its former software division CEO, Todd Bradley, joined HP and took over the PC unit. There's a great idea. Hire a failed CEO to drive one of your biggest business units. And once Palm was absorbed into HP, Bradley got to run it again since it was part of his business unit. Brilliant.

I always thought Ray Lane did a great job before Larry Ellison pushed him out of Oracle (Lane then landed at HP as chairman of the board), but Chowdhry asks, "What has he accomplished since leaving Oracle?" Good question. And given the record of HP's board, wouldn't it have made sense to appoint a more aggressive chairman who was closer to the technologies of the 21st century? We're moving into the post-PC era, and it's going to take the best talent for older, PC-centric companies to manage the transition.

Start taking the steps to save HP
Firing the leaders who've messed up is only the first step. HP needs a new board with people on it who have achieved significant success in mobile technology and software (former Oracle president Charles Phillips, perhaps?), as well as officers who know the meat and potatoes of hardware and services. It needs to develop a serious mobile strategy and come to grips with the reality that Itanium is dead, dead, dead. If HP wants to exit hardware, there has to be a transitional strategy. Suddenly cutting the PC business loose at the same time HP's mobile strategy is in ruins may seem bold to Apotheker, but I think it smacks of desperation. Pretending you can turn into IBM overnight makes no sense.

I admit I'm being harsh. But the stakes are really high. When big companies go, a lot of people get hurt. Giants like HP not only employ tens of thousands of workers, they're at the center of an ecosystem that employs many thousands more -- from engineers at component makers to independent software developers coding WebOS apps and the low-paid help making sandwiches in the company cafeteria. And hundreds of thousands -- millions, even -- of people rely on the products every day.

Those people deserve to keep their jobs, shareholders don't deserve an ugly haircut, and customers deserve good products from a company that can keep delivering. I hope HP makes the changes that are so obviously needed.

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill.snyder@sbcglobal.net. Follow me on Twitter at BSnyderSF.

This article, "The sharks are circling HP -- can anyone save it?," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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