No. 5 tech story of 2011: HP's meltdown

HP's disastrous year was about more than Leo Apotheker (though he didn't help)

This is the seventh post for "My personal, hand-selected top 11 tech stories of 2011." You can read the first six by clicking on the links at the bottom.


The warning signs were there when former short-time SAP chief executive Leo Apotheker was named CEO of Hewlett-Packard on September 30, 2010.

Apotheker, then 57, was a native German who had spent two decades at business software vendor SAP before ascending to the top job in April 2008. He was out less than a year later, blamed for a downturn in the company's financial performance following his decision to raise customer fees for software maintenance and upgrades.

And now this lifelong software executive and failed CEO was being put in charge of the world's largest PC maker? Analysts were immediately skeptical: "I think HP has made the wrong hire" ... "a bit of an odd choice" ... "[W]hat that means for a giant hunk of their business that is not enterprise software is a mystery."

That last quote refers to HP's PC division, which generates about 30% of the company's revenue. And what it meant was that last August, less than a year later, Apotheker would announce to the world that he's just as soon dump the boring, stupid old PC business with its low margins and inextricable ties to the company's supply chain and its enterprise customers, who HP planned to target with its totally awesome cloud-based software and services business.

That news, along with HP's announcement that it also would kill off the webOS mobile operating system it paid $1.2 billion for a year earlier and would buy British software company Autonomy for $10 billion, stunned Wall Street. Shares of HP (NYSE: HPQ), which had been drifting down all year thanks to poor quarterly earnings and reduced guidance, lost 20% of their value overnight.

This ticker meltdown finally caught the attention of HP's board of directors, which finally began to realize it had made a mistake in hiring Apotheker, who was fired a month later and handed a $10 million severance package.

But what could HP's directors expect? In their haste to move on from the Mark Hurd era -- which ended months earlier amid charges that the HP chief executive had a questionable relationship with a contract employee and was abusing his expense account -- as many as eight board members agreed to hire Apotheker without ever having met him!

And that's the real story behind HP's disastrous year: An irresponsible board of directors, which, it should be pointed out, had approved of Apotheker's plans to sell off the PC business and kill webOS. (I think we can assume he ran it by them before making the announcement.)

Now the board has selected one of its own as the new CEO. Like Apotheker, Meg Whitman has no experience running a hardware company. She's the former CEO of online auction site eBay, which has a very different business model and target market.

But she was there, and willing (at least until her next political campaign). For a board that seems inclined to take the easy way out, those are credentials enough.

Whitman already has reversed Apotheker's decision to spin off the PC unit, and has cast webOS's fate to the open source community (there's hope, TouchPad fans!). But don't expect any big turnaround for HP in 2012. Leo might be gone, but the company's real problem remains.

Top 11 tech stories of 2011 linksNo. 11: Netflix's public suicide art project No. 10: The cloud rises No. 9: Tales of tablet triumph, tragedy No. 8: Patent wars No. 7: The social 'bubble' No. 6: Meet the new boss
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