Analysts Put Positive Spin On HP Scandal

Mark Hurd’s abrupt resignation as chairman and CEO of Hewlett-Packard may have put a short-term spotlight on the company for its personal and sordid reasons, but thanks to Hurd’s leadership over the past five years, HP is in a position to continue to thrive, according to analysts.

HP’s Board of Directors announced late on 6 Aug. that Hurd had decided to resign after an investigation into allegations of sexual harassment by a former HP contractor.

Following the internal investigation, the board found that while there was no evidence of sexual harassment on Hurd’s part, he did violate the company’s policy regarding business conduct, including falsifying expense reports to hide the personal relationship he had with the contractor.

HP has chosen Cathie Lesjak, HP’s CFO, as interim CEO, and has created an internal panel to search for Hurd’s permanent successor.

Controversial Years Of Carly Fiorina

Industry analysts stayed away from commenting on the reasons for Hurd’s resignation, instead focusing on what he and his executive team had been able to accomplish at HP over the past five years, taking over a company that had struggled through the controversial years under Carly Fiorina.

“Hurd has persistently driven the company to broaden its portfolio and increase its already large scale through strategic acquisition,” Ezra Gottheil, a senior analyst with Technology Business Research, said in a research report. “The $2.7 billion (£1.7bn) acquisition of 3Com, announced in November 2009, strengthens its networking portfolio, and its $1.2 billion acquisition of Palm, announced in April 2010 gives it both a strong smartphone entry and a modern mobile device operating system. These additions, along with EDS and a larger number of smaller strategic acquisitions have helped HP come closer to Hurd’s goal of a complete provider of IT technology solutions.”

Martin Reynolds, an analyst at Gartner, agreed. “Mr. Hurd drove an amazing turnaround at HP, driving a focus on measurement and results that transformed the company into a cost control machine,” Reynolds wrote in a report. “However, Mr. Hurd’s approach branded HP as a low-cost supplier, suppressing the image of the company as an innovator (this is much better than being an unprofitable innovator). I don’t expect HP’s operational discipline to fade. Mr. Hurd achieved that result through his leadership team, and they will continue to execute his plan.”

The real question is, what comes next at HP? The company has its share of challenges, according to Gottheil. The world’s top PC vendor is finding new challengers in the likes of Acer and Samsung, particularly among consumers and SMBs. Apple, with its iPhone offerings and iPad, also is a strong competitor.

In addition, IBM will continue to challenge HP in such areas as R&D and being a provider of IT products and services to the largest enterprises.

Chance To Change

In particular, Hurd has given the new CEO the opportunity to continue to grow HP’s software business to help it better compete with IBM, Gottheil said. “There is an opportunity to revise the role of HP Software, reshaping the division from its current slow growth to become a driver of revenue and profit growth along the lines of IBM’s Software division,” he said. “This transformation will be a challenge, as IBM counts on software to add value to its hardware platforms, while HP currently uses its software to drive sales of its hardware—a position that sets up deep discounting in the very profitable software sale.”

Hurd was moving HP in that direction, he said, pointing to the company’s acquisitions of such vendors as Mercury Computing, Opsware, SPI Dynamics, and others, and growing software revenue from $1 billion in 2005 to $3.5 billion in 2009. “Through HP Enterprise Business chief Anne Livermore, Hurd provided the capital for a rebirth of HP Software, enabling one of the more dramatic transformations in the software space in the past five years,” Gottheil said.

HP also now has the chance to continue its push into the consumer market, a space that HP had not aggressively pursued in the past. During Hurd’s tenure, “HP also overcame its historical reserve in consumer marketing with the very successful ‘PC is Personal Again’ campaign,” Gottheil said. “Its increasing global PC market share has helped the company weather recovery-generated component shortages.”

Gartner’s Reynolds said the new CEO will be in a good position to “take HP to the next stage. The company needs to be recognised by consumers as a cool brand, a company that makes products that you have to have. And there’s no immediate pressure to do this, so the board has time to make the right choice for the future of HP—and its future customers.”