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Tags: HP | CEO | mark | hurd | Jodie | Fisher

HP to Signal Direction With Choice of New Chief

Monday, 09 August 2010 12:23 PM EDT

Will Hewlett-Packard Co.'s most important competitor in the next decade be Apple Inc., Cisco Systems Inc. or IBM? Look to its choice of CEO for the answer.

Although the controversy over Mark Hurd's resignation is likely to percolate for some time, investor attention is already shifting to the future as the world's No.1 PC maker searches for a new chief executive and chairman.

Many analysts are betting HP will go outside its ranks to pick a new leader to ramp up topline growth, as it did to hire Hurd in 2005, and Carly Fiorina in 1999.

Whoever it picks will have big shoes to fill: while Hurd was ousted for allegedly fudging expense reports to conceal a relationship with a female contractor, he was well respected on Wall Street and credited with reviving HP's fortunes.

Since he took the reins in 2005, HP's market value has more than doubled to roughly $100 billion. Hurd's tenure saw one of Silicon Valley's most iconic firms become the world's largest tech company by revenue.

But given HP's size — it is a sprawling company with more than 300,000 employees — ramping up top-line growth will be a challenge for whoever succeeds Hurd.

"Whoever they name as a successor, investors are going to read that as a signal for the direction they're taking," said Stifel Nicolaus analyst Aaron Rakers.

HP's most direct competitor is arguably now International Business Machines Corp., which like HP sells hardware, software and technology services to the world's biggest companies. Several IBM executives including Steve Mills have been cited by analysts as potential CEO candidates for HP.

But HP also faces a new rival in Cisco, which is trying to get into the computer server market to complement its network equipment business, and run all aspects of the corporate data centre. If HP pursued someone like Cisco Chief Strategy Officer Ned Hooper as CEO, that would be read as a sign it planned to move aggressively into the network gear business.

Last but not least, Apple is also emerging as a fierce rival for HP as the popularity of the iPad threatens to redefine computing, while the iPhone continues to win market share in the mobile market.

As HP prepares to enter both the tablet and the Smartphone market following its acquisition of Palm Inc., Apple Chief Operating Officer Tim Cook has been floated by analysts as potentially an ambitious hire.

HP said its search committee is moving as quickly as possible to find a new CEO, keen to put the controversy behind it. Hurd's surprise resignation on Friday sent shares plunging 10 percent in after-hours trade.

The company has accused the married, 53-year-old Hurd of falsifying expense reports to conceal a "close personal relationship" with a female contractor, who was identified by her attorney on Sunday as Jodie Fisher.

Some analysts say the standout in-house successor for Hurd is Todd Bradley, who leads the company's PC group and helped HP surpass Dell Inc. in 2006 to again become the world's largest maker of personal computers.

But the PC unit, which delivers big sales but low margins, will not ultimately drive HP's growth, others say. That will come from technology services, and in new business areas such as network equipment.

"This is a company that is shifting into growth mode and I think that enterprise focus is a big area," said Stifel's Rakers.

Many names have surfaced over the past 48 hours, including EMC Corp.'s Pat Gelsinger, Microsoft Corp.'s Stephen Elop, along with other numerous executives from companies including Oracle Corp. and Intel Corp.

Gartner analyst Martin Reynolds said HP should hire an executive with a sales and marketing background, given that Hurd already left the sprawling business on solid footing.

"It has the operational discipline in place, the hard work has been done. Now it's a question of bringing someone in to put that vision on top," he said.

HP's decision to pluck Hurd from the much smaller NCR Corp. worked well in 2005, but Reynolds said it may be trickier to pick an unknown name this time since the new CEO would need to quickly gain the respect of HP's powerful and experienced leadership team. "Obscurity is OK, but they're going to have to be really tough," he said.

With HP fighting battles on a number of fronts, Morningstar analyst Michael Holt said: "They need somebody who has the big-picture vision about how all these pieces come together. That's what Hurd was doing."

Because HP is already so big, its challenge is to sell more and different kinds of equipment to existing customers, he said. "I like HP in spite of the PC business, not because of it," said Holt.

Besides Bradley, there are others in HP who could gun for the top job, such as Ann Livermore, head of HP's enterprise business. However, some are skeptical that HP would pick Livermore as she was already passed over in 2005.

Another dark horse internal candidate is Dave Donatelli, a highly-regarded but relative newcomer who leads HP's enterprise servers, storage and networking business.

Interim CEO Cathie Lesjak, who is HP's chief financial officer, has removed herself from consideration. On Sunday, she acknowledged Hurd's contribution to HP's success, but said investors understood that its management team is strong.

"One thing changed in this company on Friday and that was the CEO left," Lesjak said on a conference call. "The rest of the company has not changed.”

© 2024 Thomson/Reuters. All rights reserved.

Will Hewlett-Packard Co.'s most important competitor in the next decade be Apple Inc., Cisco Systems Inc. or IBM? Look to its choice of CEO for the answer. Although the controversy over Mark Hurd's resignation is likely to percolate for some time, investor attention is...
Monday, 09 August 2010 12:23 PM
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