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September 26, 2011updated 19 Aug 2016 9:28am

The ousting of Leo Apotheker: the HP back story

The decision to oust CEO Leo Apotheker was not taken on a whim, but HP's board is amongst the least patient in the industry

By Jason Stamper Blog

HP CEO Carly Fiorina, who orchestrated HP’s merger with Compaq in 2001 but failed in her bid to acquire Pricewaterhouse Coopers, was ousted by HP’s board in February 2005. The board lost patience, believing that the merger had failed to deliver the promised benefits. Never mind the fact that following its consummation HP could rightly claim to be number one in servers, PCs and handhelds, and imaging and printing.

The next year HP’s board was embroiled in a far more serious scandal, when it emerged the board had hired private investigators to find the source of boardroom leaks, who had in turn used a spying technique known as pretexting. This involved investigators impersonating HP board members and nine journalists in order to obtain their phone records. Shortly after the scandal broke board chairman Patricia Dunn resigned, along with HP’s general counsel.

HP’s next CEO, Mark Hurd, got the firm onto a much more solid financial footing. During his five year reign shares in the company doubled and HP became the largest computer maker by revenue. But then last year disaster struck, when it was alleged he had falsified documents to conceal a relationship with a former contractor and help her get paid for work she didn’t do. The woman involved had accused Hurd of sexual harassment, and while an internal investigation found him innocent of that charge he still resigned (read, was pushed by the board), later to join Oracle as president.

Next to take the HP CEO hot seat was Leo Apotheker, formerly CEO at SAP. Shortly after he was hired Apotheker told CBR about his new strategy for the firm, and one of the things it involved was getting developments from the lab to the market faster. "What we really need to do is be much better at taking what’s happening in the labs, transform it into products or services and then bring that to market in a way more effective and significantly faster way. That’s something that we really need to improve at HP," he said.

HP has long had the tagline ‘HP Invent’. We asked Apotheker how important new innovations are in his view, as opposed to incremental improvements to existing products. "At the end of the day an innovation that is absolutely brilliant and has received a gazillion patents and sits in the lab doesn’t really help anyone," Apotheker said. "So it has to be brought to market and it has to deliver value for people. The challenge with that is that if you are too early with an innovation it does because the market is not receptive for it and therefore timing is a real art."

But timing didn’t appear to be on Apotheker’s side. Its TouchPad tablet, using technology from HP’s $2.1bn acquisition of Palm in April 2010, perhaps came to market too long after Apple’s iPad. HP canned the TouchPad just weeks after it went on sale, citing disappointing sales.

Apotheker also orchestrated the acquisition of British search and information management maven Autonomy for £7.1 billion. The valuation of the company is equivalent to 25 times the pre-tax profits earned by Autonomy in the 12 months to June this year.

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£7.1 billion is a lot of money to spend on any company, and Apotheker conceded that it was part of some major changes at the firm. He said also that HP would back away from the WebOS mobile platform that had come with its acquisition of Palm, and that it may even get out of the PC business altogether.

"It doesn’t understand software"

HP’s acquisition of Autonomy received mixed reactions from the analysts. Quocirca analyst Clive Longbottom told CBR, "HP has a chronic record in software acquisitions – just look at Mercury Interactive – it doesn’t understand software. Leo Apotheker has a background in software but he’s one person in a very large organisation. The hardware guys will want to see how they can wrap hardware around it, the same for the services group," Longbottom added.

Meanwhile Richard Holway, also of TechMarketView, was guardedly positive. "It isn’t ownership that really matters. It is where a company is HQed. Autonomy’s HQ is in Cambridge. It was a magnet for the area. It created jobs not just for entry level graduates in the UK, but in all the support activities like brokers, advisers, legal beavers, accountants etc. It created a beacon that others aimed for," he wrote.

In a statement sent to CBR, Autonomy insisted that its acquisition does not mean the end of its presence in Cambridge: "Autonomy’s management will remain at the helm of Autonomy, and CEO Mike Lynch will report directly to Leo Apotheker at HP," the statement read. "The deal gives Autonomy access to HP’s 28,000 strong sales force, and HP access to the next generation of data management software. Autonomy will remain headquartered in Cambridge."

And that, you might have thought, was that. A happy ending for Mike Lynch and Autonomy, as it starts its new life as the jewel in HP’s software crown. But then towards the end of last week it was announced that Apotheker has been ousted too. Perhaps we should have seen it coming – after all, HP’s shares have lost 40% of their value since he took the reins, dropping 25% in a single day when he announced HP would discontinue its webOS business and possibly sell its personal systems group.

Taking over from Apotheker is Meg Whitman. Whitman is most famous for her 10 years at the helm of eBay, where she helped take sales from $4m a year to over $8 billion. In her first interview as HP CEO she said the firm stands in principle behind Apotheker’s strategy, including the acquisition of Autonomy. "It does not signal a change in the strategy," Whitman said of her appointment. "We are behind the actions that were taken on Aug. 18. We are firmly committed to Autonomy."

If the history of HP’s leadership tells you anything, it’s that Whitman is likely to be heavily scrutinised. She will need to continue to grow revenue while assuaging investors, and she hasn’t run an enterprise company before – HP makes about 75% of its $126bn sales in the enterprise. It will be interesting to watch the next chapter of the HP and Autonomy story unfold. On past evidence, it’s already looking like becoming a best-seller.

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