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Angel for HP?

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DQC Bureau
New Update

In less than a decade, the world's
biggest IT company, HP, has appointed a female CEO for the second
time. While Carly Fiorina's stint was tempestuous to say the least,
ending with her unceremonious exit, will it be second time lucky for
Meg Whitman, the former eBay CEO who replaced to become HP's third
CEO in two years? The very fact that there have been 3 CEOs in such a
short span of time indicates that HP's house is not in order.
Recent speculations about HP trying to sell off its low- argin PC
business or its decision to pull out of tablets are proofs of
troubles brewing at the Palo Alto headquarters. This is probably the
time HP needs someone like Whitman at the helm, who carries a
reputation as a 'penny-pincher' in the business circuits.

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The reputation is not ill-founded. If
Pierre Omidyar conceived and founded eBay, it was Whitman who
nurtured it to make it the world's largest marketplace where you
can buy and sell almost anything. And unlike most dotcoms that tried
to turn the Net into TV or the mall, Whitman tapped into its root
appeal, communications, letting people trade among themselves. And
in contrast to many dotcoms,

she pinched pennies from the start.
From 30 employees and $4 mn in revenues when she joined in 1998,
Whitman helped eBay grow to 15,000 employees and $8 bn in revenues by
the time she resignedin 2008. Repeatedly named by Fortune as one of
the top 5 most powerful women, Whitman was an unsuccessful Republican
candidate for California Governor's office in November 2010.
Considering the strong show by Republicans in that byelections, this
was a blot in Whitman's book, nodoubt. And that too after spending
$160 mn (not exactly penny-pinching). Considering HP's state today,
they would definitely want the 'eBay' Whitman at the hot seat,
not the Californian gubernatorial aspirant.

So what could Whitman do differently in
HP and how it could help in its turnaround? And how would HP look
like after these possible changes that are talked about? Probably,
the reason why Carly had to leave earlier was that she
single-handedly drove the Compaq acquisition and HP could never
absorb it properly. In fact, according to one of HP's largest
distributors in India, the problem of HP's PCbusiness becoming a
low-margin one and HP is looking to off-load it has its genesis in
the Compaq acquisition. So one of Whitman's first jobs would be to
take remedial actions for what ironically her female predecessor has
done. Either Whitman ensures a rapid turnaround for this unit or she
manages to sell it off profitably so that HP comes out of it richer,
both literally and figuratively.

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Carly's successor Mark Hurd has
driven href="http://www.dqweek.com/HP-moves-from-discrete-to-FlexNetwork-architecture">HP
more towards services, that led to the EDS acquisition.
Unfortunately, HP's pure services biz has never taken off as
expected and reached an IBM or Accenture level, but is used more now
to push its ESSN business, under the garb of Converged Infrastructure.
Whitman's challenge will be bolster that effort as
well as take HP forward in the pure services (systems integration)
arena. Easier said than done? But who expects Whitman's job to be a
bed of roses anyway? If she doesn't want to meet the same fate as
her female predecessor or become the fourth CEO casualty in 3 years,
she might have to completely change the identity and structure of HP
as an IT company. If that is the only solution, will Whitman be up
for it? Sure, this will be her acid test, much complicated than
growing eBay or trying to become California's governor. Not many
analysts are hopeful about Whit man mana ging this turnaround. Says
Glen Serrao, director, Zinnov, “One suspects that the role of
Whitman may not be to run HP the way it is today. The goal could be
to break the organization into multiple units or to streamline the
operations through downsizing.” His speculations are based on solid
grounds. Apotheker was from an enterprise software background (ex-
SAP) and had the potential to push HP upwards in the enterprise
software (3% of total revenue), infrastructure to some extent (15% of
revenue), and services space (28% of total revenue). He was blamed
for not understanding the PSG (33%) and IPG (19% of revenue) side of
HP's business. Meg Whitman (the replacement) is famous for growing
eBay from a start-up to a giant, but HP currently needs a
consolidation expert, rather than a growth expert, who can optimize
the large and complex operations of HP for profitability. On the
positive side, the immediate vibes from Whitman after her takeover
indicates the PC business after all might not be sold. While HP under
Apotheker in August had indi cated that it would explore
opportunities to spin off PSG, Whitman categorically mentioned they
would consider the proposal only at the year end, with enough hints
that a reconsideration might be on the anvil.

“With regard to the potential
spin-off of PSG, we're committed to doing the work right now to
determine the best path forward and we expect the board to make a
determination by the end of the calendar year, if not sooner. This
decision is solely based on the value to investors and value to
customers,” says Whitman. Therefore, what comes out is the plan to
sell the PC business without a clear direction damaged trust with
customers and partners, and may have cost Apotheker his job. With
razorthin margins and slowing sales, the PC unit has become a drag as
HP moves to emphasize more profitable business areas such as
enterprise software, services, and hardware. Still may be Apotheker
might have rushed in his decision; and probably that's why Whitman
prefers a more 'wait-and-watch' job. “They are the largest PC
vendor in the world, the most profitable after Apple. Talking about
spinning that off without any resolution on it was a surprise,”
says a senior analyst. In the ultimate analysis, most analysts are
guarded and analysts are guarded and are talking about both pros and
cons of Whitman's appointment. According to Gartner analyst Mark
Fabbi, Whitman clearly has a better ability to articulate a strategy
and be very clear about what she is going to do and that she can
expect better co-operation from HP's senior team. “Her comment
about 'recommitting to the hardware business' is a key one,” he
adds. On the cons side, he agrees with the many who say that she
lacks the experience of running a really big company. But then
practically not too many have run a $100 bn company. Overall, Whitman
seems like a good 'figurehead' CEO who could help calm the
market and shareholders, but how long she would stay at the job
probably those in Palo Alto too don't know.

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