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HP Restructuring: Smart Strategy, Dumb Execution

HP Restructuring Smart Strategy Dumb ExecutionYesterday HP, the world's largest technology company, announced its intent to shut down its tablet and smartphone business and sell or spin-off its $41 billion personal systems group, including its PC business.

Since its new tablet is a flop and PC margins are slim to none, that sounds like a good move, right? It may very well be a smart strategy, but the way HP's going about it is, to put it bluntly, pretty dumb. Seriously.

Why should that surprise anyone? It's just another day for a board of directors that's bumbled and fumbled acquisitions, spin-offs, and hiring and firing CEOs for a decade. Still, that's no excuse for destroying shareholder value and, more importantly, jobs.

Let me explain my thinking and try to put yesterday's surprise move in perspective:

Last year, HP acquired Palm for $1.2 billion with plans to put the software in everything from smartphones and tablets to PCs and printers. Granted, that was under former CEO Mark Hurd. But just five months ago, current CEO Leo Apotheker said he planned to put WebOS on every HP computer. Now WebOS is suddenly in some sort of software purgatory. That's some backpedal.

Not only that, but HP just launched its much anticipated iPad competitor, TouchPad, last month along with a high-visibility ad campaign. Now, service providers, app developers, and anyone who actually went out and bought a TouchPad or any other WebOS product (who knew they even made smartphones?) just got hung out to dry.

Even more importantly, HP is the world's number one PC maker. That's a $41 billion business and an organization of who knows how many tens of thousands of employees. There are three big things wrong with broadcasting the intent to unload a commodity business of that size over the next year or year and a half:

  1. Who's gonna buy one now? What consumer or business would invest in HP PCs now when they have no idea who's going to own and support the business a year from now? What developer or channel partner will commit resources, what retailer will provide valuable shelf space? The WebOS move demonstrates that HP has no problem hanging customers and partners out to dry.
  2. What's that $41 billion worth now? When IBM sold its PC unit to Lenovo in 2004, there were rumors like 3 days before the sale was announced, not a year and a half. Anybody want to guess how much of that $41 billion will be gone by the time HP has finished "exploring strategic alternatives?"
  3. How about the brain drain? All the good, competent executives and engineers have already updated their resumes and LinkedIn profiles and will be returning headhunter calls by tomorrow. Any company willing to buy the unit will know what they're getting - the dregs. And they'll negotiate accordingly. That means HP will be lucky to get fifty cents on the dollar.
So why the dumb, rookie move? I have no idea, but it seems like Apotheker panicked - that he was willing to do pretty much anything to avoid another bad-news earnings call - and decided to stupidly pre-announce the news to put a positive spin on a terrible forecast.

Look, I'm no fan of Leo Apotheker. He had a horrendous track record at SAP and since coming to HP he's been all over the map. First he raises guidance, then he lowers it three quarters in a row. He launches then pulls the plug on new products and platforms months apart. The only thing he's done consistently is make excuses and blame the company's poor performance on everyone and everything, from former CEO Mark Hurd to the earthquake and tsunami in Japan.

As for HP's board, I'm not alone in thinking that there's something chronically wrong with a board that:

  • Hires rock-star CEO Carly Fiorina, who acquires Compaq for $17 billion in perhaps the most disputed and controversial merger in history; then
  • Chairman Patricia Dunn ousts Fiorina and gets ousted herself for spying on other board directors to plug media leaks; then
  • Hires Mark Hurd who does an amazing job of turning the company around and then dumps the guy over a nonexistent scandal in what Oracle CEO Larry Ellison called the "worst mistake since Apple fired [Steve] Jobs;" then
  • Surprises everyone by hiring Apotheker, who had just been canned by SAP eight months before; and
  • Now this move which, ironically, will finally undo Fiorina's ill-fated Compaq merger and bring us full circle.
So, if you were at all wondering why a company with $126 billion in revenue, $8.7 billion in profits, 324,000 employees - the world's largest technology company - has a market valuation of only $61 billion (smaller rivals IBM and Oracle are worth $196 and $127 billion, respectively), now you know. Dumb happens.

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