As 76-year-old Hewlett Packard splits itself apart, here's a look at moves and miscues that brought it to this point.
As the storied tech icon Hewlett-Packard launches a new era as two companies, it’s by no means clear that either can replicate HP’s past successes, as evidenced by the company’s most recent earnings report.
So this is a good time to revisit those wins and losses accruing since HP was founded by William Hewlett and David Packard in 1939.
For decades, HP HPQ has been noted for churning out well-engineered gear from oscillators to printers, PCs, servers, and storage. Rick Chernick, CEO of Camera Corner Connecting Point, a longtime HP reseller in Green Bay. Wis., said the irony is that HP hurt itself over the years by building printers that don’t fall apart. “It’s hard to keep selling stuff into accounts when the old stuff keeps running,” he said.
With that in mind, let’s go through some of HP’s high and low points over its long life.
HP’s $25 Billion Compaq Purchase
This was a mixed bag. Many observers slammed (and still slam) HP’s acquisition of Compaq, announced in 2001 and completed a year later after much controversy. But Patrick Moorhead, founder of Moor Insights & Technology, said Compaq gave HP a huge boost in PCs and servers at a time it needed it. HP’s Proliant servers were the top sellers “since the inception of the category, helped by Compaq,” he noted.
But the Compaq deal did not pay off for HP shareholders, as Fortune’s Carol Loomis pointed out in her 2005 retrospective. Nor for HP/Compaq employees, some 26,000 or so of whom were laid off in the aftermath. The corporate combination, which was the industry’s largest merger at the time, was more about consolidating competitors (and customers) than bringing great products to market.
To be fair, that has become the de facto M.O. for many of the tech deals that followed.
The Reign of Carly Fiorina
By most accounts except her own, Carly Fiorina’s stay at Compaq was a mess. (See the Compaq deal above.)
When Fiorina joined HP in 1999, she ushered in the era of the celebrity CEO. At the Consumer Electronics Show in 2004, for example, she shared the stage with Ben Affleck, Jimmy Iovine, Sheryl Crow, The Edge, and Gwen Stefani. For what had been an engineering-focused company this seemed the ultimate victory of flash over substance. As was the “big” HP news at the event which was the Apple iPod by HP. Yes, as Steven Levy pointed out recently on Medium, the company that was known for its ability to invent was now slapping its label on someone else’s device.
The day Fiorina was forced out in early 2005, HP share price jumped 6.9%.
Buying Into IT Services With EDS
HP bought Electronic Data Systems for $13.9 billion in 2008. The idea was that EDS would give HP a higher profile in high-end IT services—helping big businesses choose, install and run technology—so it could compete better with IBM IBM . Beating IBM was something that very much interested then-HP chief executive Mark Hurd. Before launching this quest, HP had already broached then dropped an $18 billion bid for PricewaterhouseCoopers’ consulting business, which IBM subsequently bought for a mere $3.5 billion.
So, how did the EDS acquisition go? HP ended up taking an $8 billion write-off related to the purchase in 2012.
Autonomy. Just Autonomy
If you want to get a rise out of a past or current HP employee, mention the “A word.”
Autonomy was a London-based enterprise software company known for its search and augmented reality technologies. But from the minute word of HP’s proposed $11.1 billion purchase leaked, people were dumbfounded at the price. It was just too high.
HP’s board and chief executive officer Leo Apotheker, a deposed executive from SAP SAP , apparently didn’t get that memo and proceeded anyway. The result: Charges and countercharges of fraud, lawsuits, and yes, another $8 billion write-down. Apotheker was fired in September 2011 after less than a year on the job.
The Meg Whitman Era
Whitman is generally credited with providing adult supervision for a company that needed it and offering a reassuring presence for shell-shocked investors and analysts. Some joke that on the earnings calls, Whitman is something of an “analyst whisperer.”
She’s also been good at cultivating and repairing relationships with HP’s reseller partners—a key part of its sales strategy.
Whitman was named CEO after Apotheker and immediately said that HP was in the midst of a long-term, “multi-year” turnaround. Multi-year is not something anyone wanted to hear at that point, so that took guts.
But it’s not all good. Whitman, after all was on the board that approved the Autonomy deal. As Fortune pointed out in 2012:
The HP Board
Although many of the directors involved have moved on, HP’s board of a decade or so ago presided over a PR disaster. The “Pretext-gate” scandal erupted when it was discovered that the company hired investigators that illegally obtained phone records of and otherwise spied on its own board members and reporters. The goal? Find the leaks. And there were many, many leaks.
Check out this Barron’s story on Hurd’s email to employees to get the feel for what happened but the whole thing reeked of Nixonian paranoia. Board member Patricia Dunn took the fall, but no one bought that the misbehavior started or ended with her.
And many don’t believe the board’s habit of leaking to the press died after Pretext-gate. Apotheker’s proposed move to sell off HP’s PC business, for example, was leaked in 2010.
Hurd wanted HP to get into the mobile business where it was a laggard so in 2010, he announced plans to buy Palm Computing, home of the once-popular Palm Pilot, which had seen better days. The price was about $1 billion. Palm had a newish operating system for mobile, the webOS, but had been passed by in the smartphone market by Apple AAPL iPhone and Blackberry. At the time of the acquisition, HP promised to double-down in mobile. Fast forward a year, and HP, now run by Apotheker, blew up its brand-new webOS-based tablet after less than two months on the market.
3Par Pays Off
On a brighter note, HP’s $2.35 billion purchase of storage maker 3Par seems to have paid off. HP won the prize after a bidding war with Dell, leading to a higher-than-expected purchase price, but 3Par sales have since been a high point on HP earnings calls and 3Par gives HP a much better storage story to compete with EMC EMC and other storage players.
On HP’s earnings call Tuesday, Whitman said 3Par’s all-slash storage hit a “$500 million annualized run rate business and grew triple digits in the fourth quarter.”
Aruba Networks Boosts Wireless
HP needed wireless networking expertise bad. With its $3 billion acquisition of Aruba Networks earlier this year, it got that.
HP reseller Chernick said Aruba gives HP a more compelling way to sell against Cisco and other networking vendors. “HP’s switches and networking were great, but it needed wireless,” he noted.
Cloudy Cloud Strategy
HP’s cloud strategy, which will now live within the HP Enterprise unit, has been a mystery.
There have been several starts and stop under different cloud executives. Two years ago, the stated plan was to compete head-on with Amazon Web Services to sell (or rent) shared computing, storage, and networking resources to business customers. In a nod to Amazon’s AMZN market dominance, that plan was at first downplayed, then officially scuttled a few months ago.
Now HP’s idea is to offer private cloud technology that lets customers run variable workloads in their own data centers or on resources dedicated to them (not shared) in HP-run data centers. And it will offer ways for those customers to also connect to Amazon or Microsoft MSFT public clouds as needed in a hybrid cloud scenario. Hybrid cloud will let customers keep important data on their own servers and storage but put other data or other jobs onto shared public cloud resources.
The biggest challenge for both Hewlett Packard Enterprise and HP Inc. going forward is to prove that they are not just about rolling up acquired technologies but can return at least partly to HP’s roots of building innovative and solid technologies.
Salil Deshpande, managing director of Bain Capital Ventures—who did two internships at HP earlier in his career—said legacy companies including—but not limited to—HP seem to be more distribution and sales organizations than product builders.
Don’t get me wrong, sales organizations are important, but if the company doesn’t make a product people wants, they’re useless.
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