Can Hewlett-Packard be saved? Maybe not

(MoneyWatch) Hewlett-Packard (HPQ) has been on the decline for some time. Things have gotten so grim that the prospect of corporate raider Carl Icahn taking a stake in the struggling technology company appears to have driven up the stock price.

There are many ideas about what HP should do. One is to break up the company and sell off the pieces, a clear possibility of an Icahn-controlled company. Another is to throw out the entire board and pick a new CEO in hopes that new leadership can pull things together.

Yet by now it is unclear what, if anything, can fix HP. With dysfunction now seemingly endemic within the company, it is even questionable whether any divisions HP might spin off could become healthy entities in their own right.

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• HP battered by past decisions and the future of its industry
• Under Mark Hurd, HP innovation nose-dived

One criticism of HP has centered on its long chain of poor acquisitions:

From the acquisition of Bluestone Software in 2001 for $470 million (which Carly Fiorina shut down just a year later -- and paid BEA $5 million to take Bluestone's customers off her hands) to the painful squandering of Palm, HP's management has consistently done one thing well: screw up.

And the problem goes deeper than that. Although tech companies routinely use acquisitions to bolster their technical expertise and fill holes in their product lines, HP's misguided merger strategy isn't simply a function of poor management under one CEO after the next. Rather, for more than a decade the company made a conscious decision to steadily reduce its investment in R&D, both in dollars and in percentage of revenue.

The acquisitions largely amounted to an attempt to cut costs through buying innovation that came with its own revenue streams. HP could then account for much its acquisition costs as "goodwill," which expanded its balance sheet, and point to the revenue growth from buying new businesses as proof that its strategy was working. Except that bolting on acquired companies while milking them for innovations is a difficult task. The buyer must integrate these new capabilities into what it already does. Apple (AAPL) has shown great skill in this area, creating such products as the iPhone and iPad with the skills and knowledge it gained from acquisitions.

By contrast, HP never built an organic business out of its attempts to reduce R&D costs. The company wanted to be like IBM. Yet while Big Blue could seem like a sprawling assemblage of disparate parts, the company has used its services arm to unify R&D and continue innovating.

Meanwhile, HP's board has had a steady rotation of seasoned tech and corporate execs, but the only constant has been the company's defective culture. For example, HP board member Marc Andreessen says that Meg Whitman is the best CEO for the company. And yet both helped oversee the lurching strategies of the last few years. For whatever reason, no matter who comes and goes at the top of the company, the results are the same.

In the end, breaking up the company may be the only way to recoup value for shareholders. To survive, HP will have to give up what it has been.