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Kurt Marko
Kurt Marko
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HP's Turnaround: It's Time To Believe

Not only does CEO Meg Whitman seem to have a solid strategy, but there's plenty of evidence it's starting to work. Maybe it's time for skeptics like me to admit we're wrong.

The last few years for HP have been some of the most tumultuous for any major corporation in recent memory not named Enron. HP's era of strife includes six CEOs in the last 12 years, several five-figure layoffs during the same period, multibillion-dollar write-downs and a stock price that dropped to fire sale levels last November. It was easy--nay, natural--to assume the company would follow the path of its acquired properties--DEC, Compaq and 3Com--and be sold outright or broken up for parts.

But it turns out last November's confluence of bad news--an underperforming earnings report and the accompanying massive $8.8 billion write-down on the value of its ill-advised Autonomy acquisition--was the nadir of HP's fortunes. The company has since slowly but surely been grinding away at CEO Meg Whitman's five-year HP turnaround strategy to produce what she characterizes as HP's strongest product lineup in 20 years.

It's become clear that Whitman's plan wasn't just a stall tactic to bulk up her bank account. Unlike her predecessor, Leo Apotheker, who was tickled to finally get a job running a tech giant like HP, Whitman didn't need the money nor the headaches of righting a sinking ship like HP. She was already a billionaire from her days at eBay and had nothing left to prove. But she was on HP's board, and thus bore some responsibility for the mess left by Apotheker and his predecessor Mark Hurd's short-term, quarterly numbers focus and scandalous exit. Whitman had been around Silicon Valley long enough to venerate HP's traditions and reputation, and clearly didn't want to see it end like this. Unlike certain recent holders of her position, she valued HP as an institution capable of producing great products that improved the lives and profitability of its customers, not just as a path to fame, fortune and power.

The cynics among us--particularly old HP hats like me (full disclosure: I worked at HP for over 17 years, leaving more than seven years ago) who remember the days of Bill, Dave and their protégés like John Young--took Whitman's early pronouncements as so much lip service. We'd been burned by former CEO Carly Fiorini's rechristening of the HP brand as "Invent," only to see it end up as a hollow slogan and not a recommitment to product and engineering excellence. But Whitman has since had time to prove the skeptics wrong.

Last year was the painful part of her five-year strategy. In retrospect, it's clear Whitman's year-one tactic was to clean up HP's messy balance sheet and cost structure, including taking a realistic assessment of recent acquisitions, which resulted in the painful Autonomy and EDS write-downs. Another dose of pain was initiating almost 30,000 layoffs from an employee base that had bloated to nearly 400,000 after so many large buyouts.

This year starts the gain from all that pain. From a balance sheet characterized as "a mess" by one analyst who valued the company at a negative$2 per share last fall, HP has roared back. The result is an HP that saw its cash from operations increase 44% to $3.6 billion in its second quarter of 2013 while reducing its debt almost 40%. While cleaning up the finances to make Wall Street happy, Whitman was simultaneously repositioning HP to take advantage of the tumultuous changes upsetting the consumer and enterprise technology markets.

Indeed, as HP board member, noted venture capitalist and Internet luminary Marc Andreessen recently told CNBC, Whitman "has been emphasizing products much more, like Moonshot. She has more stuff out of the labs, more products under development. I think HP has more new products under development than it has at any point in its history." He even called Whitman HP's best CEO since the founders.

Next Page: HP's Transformation

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RonF595
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RonF595,
User Rank: Apprentice
7/12/2013 | 9:46:23 PM
re: HP's Turnaround: It's Time To Believe
As a long time systems engineer using HP's Proliant line (Compaq was the last smart acquisition they made!) I'm glad that they seem to be pulling their collective heads out. I sadly saw a lot of top notch engineers/architects jump ship to Cisco. They just need to get back to their roots as an engineering innovation company that H and P started with.. stop doing stupid sh!t like buying the latest has been gadget company
ServerStation668
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ServerStation668,
User Rank: Apprentice
6/19/2013 | 8:52:03 PM
re: HP's Turnaround: It's Time To Believe
Hp is inventive with this workstation, the Z620: http://www.youtube.com/watch?v...
kmarko
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kmarko,
User Rank: Apprentice
6/19/2013 | 2:55:03 PM
re: HP's Turnaround: It's Time To Believe
I would not argue that HP's absolute R&D spending is lower than many major technology companies like IBM, Apple and Microsoft however it has picked up a bit since the depths of 2009-2010 (http://ycharts.com/companies/H... ), of course it's still much higher than Dell's. That said, if you look at the examples I cite (Moonshot, SDN portfolio, storage systems), it's clear the company is still capabile of innovating. As I also mention, Whitman had a financial mess on her hands and spent her first year cleaning up the balance sheet. It is unrealistic to expect much R&D expansion in that environment, however I would expect the levels to increase over time. The big test will be to see what HP can come up with to fill a huge hole in its mobile device (smartphone, tablet) portfolio.
EB Quinn
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EB Quinn,
User Rank: Apprentice
6/18/2013 | 7:31:20 PM
re: HP's Turnaround: It's Time To Believe
Not buying it: HP is still being run as a portfolio company, rather than finding ways to integrate offerings across the silos. For example, look at HP HAVEn in detail and you will find little actual R&D and innovation crossing through the offering. Technology companies are measured by their vision, innovation, and execution. Whitman has stanched the execution wound, but until HP begins to actually lead again in terms of R&D, and it has been 14 years since they switched from their own "invent" to acquiring others' "invent," it will continue at best to be a spreadsheet-driven business.
cbabcock
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cbabcock,
User Rank: Apprentice
6/18/2013 | 6:25:27 PM
re: HP's Turnaround: It's Time To Believe
The culture that Bill Hewlett and Dave Packard established was so strong that the ranks of the company keep performing, despite the turmoil at the top, Whitman has put an end to the nonsense -- more power to her. Customer confidence in the company also somehow survives the previous turmoil. Great testimony to the strength and clarity of vision of the founders. Not many companies could rebound like this. The multiple missteps would have been terminal, witness Sun Microsystems, another excellent company in its day. Charlie Babcock, editor at large, InformationWeek
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