Hewlett-Packard's (NYSE: HPQ ) recent moves clearly point to a company in need of a new business strategy. Many have questioned the hiring of former SAP (NYSE: SAP ) CEO Leo Apotheker to run HP, which strikes me as unfair and premature. In addition, hiring Ray Lane as Chairman could prove to be just as important to the company as it moves forward. If investors should question anything, it's the direction toward which HP is moving its business, and why it has taken so long to actively respond.
A brave new world
Hiring Apotheker and Lane clearly signals that the company needs to grow more actively in the software and consulting business. While neither hire is very experienced in HP's core hardware and PC business, that's not why they were brought in.
Lane is the former COO of newly minted HP archrival Oracle (Nasdaq: ORCL ) , where he worked alongside current CEO Larry Ellison, transforming the company into the software powerhouse it is today. Most recently, Lane was a managing partner at Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. This has provided him with much-needed experience and contacts at some of the most innovative and valuable technology companies in the Valley, which most likely will become acquisition targets for HP and others in the future.
An analyst at Global Equities Research explained Lane's arrival as "a historical shift for HP," one which will bring a much needed entrepreneurial spirit to a stodgy firm. For those opposed to the Apotheker hiring, Lane could also serve as a backup or "next man up" if business doesn't go as planned. He certainly brings experience to the table, and his work as chairman will allow him to get up to speed with HP's business.
While HP needs a shift in its business strategies, the company's new direction will lead it to a much more competitive environment, filled with more able and innovative rivals. It was easier competing in the PC world, with the likes of unimaginative companies like Dell (Nasdaq: DELL ) , which HP recently outbid for software and cloud-computing firm 3PAR (NYSE: PAR ) .
Sure, the world of software has a few Dells of its own. But it's also full of dynamic companies that have a huge lead on HP when it comes to innovation. Competitors IBM (NYSE: IBM ) and Oracle aggressively built up their own software offerings earlier last decade. In addition, the purchase of 3Par might point to HP's own lack of innovation. IBM felt content enough with its own R&D efforts in storage to sit out the 3Par bidding war, while HP and Dell kept ramping the buyout premium to nosebleed levels.
Not too soft
HP's software unit contributes only 3% to the company's total revenue, but it can crucially bundle with HP's hardware and consulting offerings to provide customers end-to-end solutions and cost savings. As Apotheker said himself, software needs to be the "glue" that holds the company together. Today, enterprise clients are looking for one-stop shops, where a single company can cover their software, servers, hardware, and consulting needs. As previously mentioned, rivals like IBM, Oracle, and Cisco (Nasdaq: CSCO ) have been quicker to adapt to this changing dynamic. At least HP seems to understand the challenge, and is taking steps to meet it.
Leo Apotheker may not have been the rock-star hire that analysts and tech gurus wanted. But along with Ray Lane, his arrival represents a step in the right direction. With the company's balance sheet ripe for future acquisitions, it's time for these two to get to work.