The Year in Review: HP

By PCMag Staff

December 29, 2011

Even Hewlett-Packard apologists admit that 2011 was a year of transition for the computing giant. More jaded souls have labeled HP's roller coaster ride .

The Silicon Valley stalwart dumped its CEO, mothballed the consumer tablet it spent more than $1 billion to build just weeks after releasing it, spooked the whole PC industry by threatening to leave it entirely, and may have offered future MBA candidates an object lesson on why getting bigger for its own sake doesn't always make a whole lot of business sense.

Reaping What You Sow
HP's woes theoretically began with of superstar CEO Mark Hurd over a scandal involving an outside event planner and expense reports. But in reality, Hurd's revitalization of the company masked a series of disjointed acquisitions and the installation of a hard-charging, mercilessly sales-driven corporate culture under his leadership—the combination of which probably sowed the seeds of HP's current predicament.

Hurd's replacement, Leo Apotheker, was underwhelming at best and at worst during his brief stint in charge of HP. But Apotheker inherited a company that may have been far too bloated to have painlessly dealt with a rapidly changing technology landscape no matter who was at the helm.

HP in 2011 found itself caught in the middle between the enterprise-focused models of companies such as IBM and Oracle, and the giants of consumer technology like Apple, Google, and Amazon. True, the company was high-tech's biggest in terms of straight sales, but its consumer-facing businesses were operating at increasingly thin margins.

Meanwhile, HP's business products and services units seemed to lack the single-minded focus of their counterparts at IBM, Oracle, and Cisco because Hurd wanted so badly to service the entire IT stack that he went out and bought all the pieces HP didn't own, from EDS . HP sales reps were pressured to strong-arm partners and customers towards total HP solutions, even as the company was trying to integrate all the disparate parts on the fly.

That's simply not sustainable and it would be unfair to pin the blame for HP's rough year entirely on Apotheker, who was in a stickier spot than many realize. In fact, Apotheker had a lot of good ideas about where the company ought to be headed but simply couldn't communicate them very well.

The Apotheker Era
Before being , Apotheker attempted to direct HP towards a software and services model aimed squarely at the enterprise similar to that of IBM and his former company, SAP. Like Cisco's John Chambers, he seemed to sense that his company was plagued by conflicting business missions in trying to please both business customers and consumers.

The thing is, Apotheker was probably right. But unlike Cisco, which relatively painlessly last April, HP is far more entangled in consumer markets. Thanks to former HP CEO Carly Fiorina's deal for Compaq, it's the biggest PC maker in the world. HP's printers are sold to consumers and commercial customers alike. And the company , a maker of consumer cell phones and PDAs.

In the coming years, HP may need to emulate IBM—which seems increasingly prescient for initiating its own painful transition away from consumer technology several years ago. But it took years for IBM to transform itself. Apotheker appeared blissfully unaware that investors might balk at his seemingly guileless public discussion of exactly how fast and how much HP would need to purge itself to evolve.

Case in point, his that HP spin off its PC business or put it up for sale. Even worse, the news was leaked before HP could announce it. HP clearly from the consumer PC market, since Apotheker's successor Meg Whitman had no trouble when she took over.

Continue Reading: The TouchPad Debacle>

The Trouble With TouchPads
When HP acquired Palm, it had plans to integrate the company's mobile operating system across its broad portfolio of products. The company wanted to roll out hip webOS-based smartphones and tablets, as well. Instead, the deal resulted in the biggest black eye for HP since at least the demise of Fiorina's regime.

In on its first webOS-based consumer tablet, the , mere weeks after it was released to great fanfare in July, Apotheker and Co. did something new.

Products crash and burn all the time in the tech industry. Vaporware is always floating around out there in the ether. Companies often write checks with their PR spin machines that their technology can't cash. But it's not every day that a firm with the bankroll of an HP just up and quits on a first-generation product after barely testing the waters with it.

There was a shocking spinelessness to the way HP caved on the TouchPad. Sure, initial sales weren't great. Yes, the iPad's market share is big and scary. But companies like Samsung, Motorola, and even Research in Motion have stuck it out despite similarly disappointing first stabs at a consumer tablet.

Instead, HP acted like , only with a tablet that actually worked and several billion in the bank to weather an initial sales rough patch.

Ironically, HP's made it the year's , behind only Apple's iPad. Unironically, Amazon has since introduced the Kindle Fire, the first successful tablet not made by Apple (HP actually had its own 7-inch tablet in the works, , before killing off the line) and 2012 looks like it could be the year other companies start putting a real dent in Apple's market share.

A New Meg-gining?
All of this sums up the challenge new HP CEO Whitman has in front of her. The former eBay CEO, who made a run for California governor in 2010, is certainly a step up from Apotheker in the communications department. She also struck the right note in kiboshing the idea of selling off the PC business and salvaged some dignity for HP by rather than auctioning off Palm's patents to the highest bidder (though that may have been because HP couldn't get the $1.2 billion the company—incredibly—was supposedly asking for in exchange for webOS and Palm in the latter half of 2011).

But Whitman faces the same challenges as her predecessor in figuring out how to judiciously work a bloated heavyweight back into fighting trim without taking too many share price hits or alienating a wary workforce. And she knows it—Whitman has admitted that the company presented a "confusing" picture to investors in 2011.

HP's new leader for turning HP around in 2012 during her first earnings call as CEO, but also warned that "strong macroeconomic headwinds" remained in place. Saying HP didn't want "to get ahead of itself," Whitman pointed to 2013 as a more realistic timeframe for the company to return to its growth and performance from earlier in this decade.

One way HP will diverge from its recent business approach is to refrain from gobbling up other companies, Whitman said. HP, which in recent years has spent tens of billions to acquire companies like Palm, 3Com, Electronic Data Systems, and Autonomy, "will not be doing any large M&A in 2012," she said. Clarifying that point later, Whitman said HP probably wouldn't make any deals of more than $500 million next year.

She also pledged to pump more money into research and development at the company, something from which HP has veered away in recent years.

For more, see PCMag's year in review for , , , and .