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Ouster of Hewlett Packard C.E.O. is expected

Ouster of Hewlett-Packard C.E.O. is expected

By Quentin Hardy, Nick Wingfield, New York Times | Updated: 5 June 2012 01:51 IST

Highlights

HP was preparing to fire its chief executive, less than one year after naming him to the post, according to several people with knowledge of the board’s actions.

Hewlett-Packard, the technology giant that has stumbled through repeated embarrassments, was preparing on Wednesday to fire its chief executive, less than one year after naming him to the post, according to several people with knowledge of the board's actions.

The leading candidate to replace H.P.'s chief, Léo Apotheker, was Meg Whitman, the former chief executive of eBay, who was sought for her ability to run a large technology company, said the people, who asked for anonymity because they were not authorized by the board to speak publicly.

With the move to fire its third chief executive in a row, Hewlett-Packard risks looking like the tech company that cannot find its way. It is one of the oldest and most successful tech companies and yet in recent years it has been surpassed by far more innovative and better-managed companies like Google, Apple and Facebook in symbolizing innovation in Silicon Valley. The question facing H.P. is whether a new chief executive can restore its leadership position.

On a day last month that crystallized the company's careening strategy, Mr. Apotheker made a series of announcements: poor quarterly earnings; an $11.7 billion purchase of Autonomy, a British software company that analysts immediately branded as overpriced; discontinuation of its TouchPad tablet and its WebOs software that had been introduced only months before; and the possible sale or spinoff of H.P.'s mainstay PC business. The stock lost about a quarter of its value on the news.

The company's stock has fallen 47 percent, a loss of over $40 billion in the company's market value, on Mr. Apotheker's watch.

Investors liked the prospect of new leadership. Hewlett-Packard's stock was up 6.72 percent Wednesday to close at $23.98. It was not clear, however, that Ms. Whitman could undo much of what Mr. Apotheker had done or for that matter whether H.P.'s board would want her to. Analysts say it would be difficult for the company to walk away from the Autonomy bid, though the board may be considering hanging on to the PC business.

Ms. Whitman, who ran eBay as it grew from a start-up to a major online retailer, left the company just as growth began to stall. She unsuccessfully ran for governor of California and was hired in March by Kleiner Perkins Caufield & Byers, a venture capital firm, as a strategic adviser.

The board conversations about Ms. Whitman are fluid, though, and might not result in her hiring, this person said. However, if Ms. Whitman were hired, she would most likely be a permanent, not an interim, replacement for Mr. Apotheker, said a person briefed on the board's discussions who asked for anonymity because he was not authorized by the board to speak publicly. While she lacks experience running a technology company as complex and mature as H.P., the company's board considers her communications skills and understanding of customers to be her strongest qualifications for the job, this person said. Ms. Whitman joined the H.P. board in January, several months after Mr. Apotheker was hired.

Although H.P.'s board is comfortable with the strategy laid out last month by Mr. Apotheker, its members have increasingly begun to raise questions about his ability to communicate that strategy effectively within the company and to outsiders, especially investors.

Last week, H.P. was hit with a lawsuit claiming that its executives misled investors about the health of the company, including its PC and mobile device business, before its recently announced strategy shift.

Some outside observers see the board itself as the problem. Since naming Carly Fiorina chief executive in 1999, H.P. has endured proxy wars with some of its founders' children over the merger with Compaq; board room squabbles that culminated in Ms. Fiorina's ouster; scandals involving spying on journalists, its own employees and board members; and the firing of Mark V. Hurd, for expense account irregularities involving a female contract employee.

"This is a decade-long drama that the board has let unfold," said George F. Colony, chief executive of Forrester Research. "They have shown some dysfunction in the past, and had difficulty coming to consensus." For some board members, he said, Mr. Apotheker's tenure "was too much change." Mr. Apotheker, 58, a soft-spoken, unassuming executive, oversaw a year of tumult at H.P., which reported $126 billion in revenue in the fiscal year that ended in October 2010. By some measures, it is the largest technology company in the world.

Even though he had not lasted long as chief executive of SAP, a large German software maker, the board quickly hired him to replace Mr. Hurd.

H.P.'s board has for some time wondered whether businesses like PCs should even coexist alongside those like large-scale corporate computing, which now often includes racks of thousands, even millions, of servers within a single company. Mr. Apotheker's response was to take the company into higher-value software and services.

Mr. Apotheker's goals for H.P. were clear from the start, but in almost a year his strategy never quite took shape. He was named to head H.P. on Sept. 30, and the next day declared that software was the "glue" that held H.P. together, a comment that surprised observers because it suggested that H.P. might start to resemble SAP. In the most recent quarter, software accounted for just 2 percent of Hewlett-Packard's total revenue.

Arriving at H.P.'s Palo Alto, Calif., headquarters exactly one month later, Mr. Apotheker began drafting his vision of a new H.P. The world's leading maker of computer hardware, primarily PCs, data storage and servers, the company would move into a so-called cloud model of large-scale data centers that customers access over the Internet, with large-scale computing power available for sale or rent. H.P. would have its own data centers, the idea went, or build them for other companies, or sell individual components to corporations that wanted to build their own.

He wanted H.P. to sell more software, in particular software to analyze databases for patterns and trends. The cloud strategy reflects current trends in technology. H.P.'s rival I.B.M. is also selling cloud-based software to better plan and manage manufacturing, sales campaigns and even the delivery of government services.

However, he worried privately about the challenges of transforming H.P.'s internal culture, which he saw as a confederation of fiefdoms.

Executives reporting to Mr. Apotheker includes the heads of what are effectively multibillion-dollar businesses in PCs, printing, storage and servers. It was never clear what role some of these businesses, like printers, could play in a cloud-centric H.P. model, which troubled some of the strong egos around the boss. As Mr. Apotheker was trying to engineer this change, PC sales began slowing. Mr. Apotheker was counting on continued strong PC sales, about one-third of H.P.'s revenue, to help finance the transformation.

Especially worrisome to H.P. is the stunning popularity of Apple's iPad tablet, a touch-screen substitute for the old PC. Since its release in the spring of 2010, Apple has sold 29 million iPads, and the tablet is increasingly gaining in business applications.

Wall Street wearied of Mr. Apotheker well before the board considered moving. "To date, results have been very poor," said A. M. Sacconaghi Jr., an analyst with Bernstein Research. "Autonomy was bad news for the price he was paying. Announcing you're thinking of getting rid of the PC business without a concrete plan was No. 2. Deteriorating profitability, particularly in services, was No. 3."

If Ms. Whitman gets the job, he said, the unhappiness could linger. "If the board effectively acknowledges that they picked the wrong person, they should do a full and complete search, inside and outside of tech. This is one of the world's biggest companies. It could attract a lot of good people."

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