Technology

Apotheker Sets Biggest HP Strategic Bet in Oracle Rivalry: Tech


(Bloomberg) — Leo Apotheker’s sweeping overhaul of Hewlett-Packard Co. steps up rivalry with his longtime foe Oracle Corp.

Hearkening back to his two-decade career at SAP AG, Apotheker plans to spin off Hewlett Packard’s personal-computer business and dive deeper into business software with the $10.3 billion purchase of Autonomy Corp.

With the plans announced yesterday, Apotheker, 57, makes good on pledges to expand in cloud computing and aims to challenge Oracle and International Machines Corp. in more profitable products aimed at corporations. Business software delivered a 19 percent operating margin last quarter, more than triple the amount for the PC unit due to be jettisoned.

“There’s focus on storage, services, security and networking,” said Pat Becker Jr., a fund manager at Portland, Oregon-based Becker Capital Management, which holds Hewlett- Packard shares among $2.2 billion under management. “Apotheker’s lining up the company to succeed there, and PCs just don’t fit. The lessons he learned at SAP have kicked in.”

Hewlett-Packard, based in Palo Alto, California, dropped $1.88, or 6 percent, yesterday on the New York Stock Exchange, as stocks worldwide tumbled and the company issued sales and profit forecasts for the current quarter that missed estimates.

“I’m lowering the Q4 guidance to be realistic about where we are and the challenges we are facing,” Apotheker said yesterday on a conference call. “I know our investors don’t like to be in this position and neither do I.”

Autonomy Purchase

The company agreed yesterday to buy Autonomy, the second- largest U.K. software maker, for $42.11 a share, or $10.3 billion. Autonomy offers programs for data analysis and its customers include Coca-Cola Co., Nestle SA and the U.S. Securities and Exchange Commission.

The purchase is Hewlett-Packard’s largest since the $13.2 billion acquisition of Electronic Data Systems Corp. in 2008 and Apotheker’s biggest deal since becoming CEO. In February, he orchestrated the purchase of data-analysis company Vertica for an undisclosed price.

Hewlett-Packard also said it’s discontinuing products that run WebOS software, which it acquired last year in the $1.2 billion purchase of Palm Inc. The operating system, which powers smartphones and tablet computers, fell short of “internal milestones and financial targets,” Hewlett-Packard said yesterday.

‘Repeatable Revenue’

With the shift, Hewlett-Packard “separates out a lower- return business from a higher-return business, and you’ll end up with one that is a better business long-term,” said Don Yacktman, founder of Yacktman Asset Management Co. in Austin, Texas, which oversees $11 billion and holds Hewlett-Packard shares. “Software is a more repeatable revenue stream.”

Apotheker, who hails from Germany and speaks five languages, rose through SAP’s sales and marketing operations, becoming sole CEO in 2009. He was ousted from Walldorf, Germany- based SAP, the top maker of business-management software, in February 2010.

His tenure as CEO was blemished by an attempted price increase during the recession that rankled consumers and by a clash with German unions on plans to cut jobs. He resigned after presiding over the company’s first revenue decline since 2003 as customers delayed software purchases.

He joined Hewlett-Packard in November after Mark Hurd departed as CEO amid a scandal over a personal relationship with a company contractor. Hurd now is a co-president at Oracle.

TouchPad Disappoints

As he assumed control of Hewlett-Packard, the company faced slowing revenue growth and increasing competition in cloud computing, the delivery of software and storage over the Internet. He vowed to buy more companies with software expertise, improve product quality and boost spending on research and development.

While Apotheker is following up on his software pledge, he’s backtracking on efforts to make the WebOS operating system a viable competitor to Apple Inc. and Google Inc.

WebOS has been suffering, Hewlett-Packard said yesterday. The business had an operating loss of $332 million in the fiscal third quarter on sales of $266 million, chief financial officer Cathie Lesjak said on a conference call. Losses would have widened if the business continued, she said.

“We have better ways to use that capital,” than trying to revive WebOS, Apotheker said in an interview yesterday. “Sales of HP TouchPads were not meeting my expectations.”

‘Sharpen the Focus’

In the PC business, competitors’ tablets have cut into sales and consumers are changing how they compute, Apotheker added. “We want to sharpen the focus of HP.”

Apotheker is exiting WebOS products just a month after the company named Palm’s former CEO Jon Rubinstein to head of product development and innovation for the personal systems group, which includes PCs, tablets and smartphones.

Apotheker said in March that all of the company’s PCs will feature WebOS, a shift away from machines that only run Microsoft Corp.’s Windows operating system.

“He’s decided he just can’t win that war,” said Maribel Lopez, founder of Lopez Research in San Francisco. “If he’s not going to be in devices on the PC side, it makes no sense to be in devices on the phone side.”

With Jeffrey McCracken, Serena Saitto, and Dina Bass
Levy is a reporter for Bloomberg News in San Francisco.
Aaron_ricadela_75x75
Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in Frankfurt.

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