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CEO Gaffe of the Week: Hewlett-Packard

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This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week I want to show you why Hewlett-Packard's (NYSE: HPQ  ) CEO, Meg Whitman, deserves the undesirable honor.

The dunce cap
In the Wild West there were two types of people: the quick and the dead.

In the world of computers and cloud-computing there are two types of companies: the innovative and Hewlett-Packard.

For years, Hewlett-Packard and PC-making peer Dell (Nasdaq: DELL  ) have trailed the pack because of their reliance on low-margin computers when the trend has been toward next-generation smartphones and tablets. You'd think that Apple's (Nasdaq: AAPL  ) incredible success, as noted by the 151% increase in tablet units sold in its latest quarter, just might give HP some inkling that its strategy was a little dated -- but that simply hasn't been the case.

IBM (NYSE: IBM  ) , seeing the strength behind the move in cloud computing, is the only company to have successfully made the transition from PC producer to having a line of fully integrated next-generation products.

So where does that leave Hewlett-Packard? In the middle of the ocean without an engine or a life raft and struggling to figure out how to turn its business around. Whitman, relatively new to the company and the former CEO of online auction site eBay (Nasdaq: EBAY  ) , decided that HP needed to head in a new direction -- and apparently so do its employees.

After reporting another 3% drop in sales and a 21% fall in profits minus one-time costs last week, Whitman grabbed her ax and outlined the company's plan to cut 27,000 jobs globally by 2014, in the hopes of saving $3 billion to $3.5 billion in expenses. The move seemed almost inevitable, given that HP isn't growing. Even with less reliance on PCs and its printing/imaging division, it still derives half of its sales from these two low-margin business segments with shrinking demand.

But really, Meg Whitman -- 27,000 jobs? Channeling a little Brian Moynihan, aren't we?

To the corner, Ms. Whitman ...
But wait -- there's more!

Even before Whitman turned HP into "Hewlett-Hackard," she was busy destroying U.S. jobs at eBay. According to the California Labor Federation, between 2002 and 2007, the number of eBay employees outside the United States increased by 666%. By their estimates, 40% of all eBay jobs were outsourced during this period.

Also, when Whitman ran for governor of California (a job you couldn't twist my arm to take), one measure in her plan to reduce the state's budget deficit was to cut 40,000 state workers -- a plan that led to her being relatively unpopular among Californian voters.

Another aspect we've learned about Whitman over the years is that she's not a great innovator. eBay's business basically took care of itself, with Whitman's purchase of PayPal being her defining moment. Aside from that, her tenure was spent letting an increase in Internet user convenience drive her company's business higher.

At HP, we're seeing more of the same. Hewlett-Packard has numerous avenues it could go down to create growth, but none of them have had any true foundation. HP's TouchPad tablet flopped so badly that it was discontinued after just two months, while its personal computing business continues to weaken despite its best efforts to stop the slide.

At this rate, HP will soon have cornered the market on buggy whips and will have a cheaper, predominantly outsourced, workforce. The question is, will anyone be buying its products ... ever again?

A big thanks to Bill Crounse for emailing me his suggestion of Meg Whitman, whom he described as a "chicken with her head cut off." Do you have a CEO you'd like to nominate for this dubious weekly honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your nominee in the spotlight.

HP isn't the only company reeling in part from Apple's incredible success. Many companies have ceded share to what is arguably the most innovative company in history. Apple has booked shareholders some massive profits and has observers thinking they've missed the boat. The fact is, Apple still has some huge growth opportunities in front of it, and to know when to strike as an investor, we've introduced this premium Apple research service for our readers. Sign up today, or you might be missing out on some big returns in the future.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Apple, Bank of America, and IBM. Motley Fool newsletter services have recommended buying shares of eBay and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 02, 2012, at 9:29 AM, oldgas wrote:

    The problems with HP started under Carly Fiorina and continue to this day. Customer Service. They outsourced it to the world and customers could not understand the broken english of the CSR's. Sometimes even level 2 & 3 support had communication issues. When you pay thousands of dollars for support and cannot get someone that speaks your language, that is bad service and companies will start looking elsewhere for better service.

    The other problem is that they have failed to keep even their vendors happy. I talk of the relationship between HP & Oracle. Oracle will not support HP's Itanium servers with any new databases. That means HP-UX servers that were once very popular will go to the graveyard and they will loose more customers.

    What they need is to take a serious look at the idiots at the top making the decisions and start eliminating those people, concentrate on areas that are profitable. They need to bring back their once highly regarded R&D team and become cutting edge that they once were rather than trying to buy their way into a market.

  • Report this Comment On June 02, 2012, at 12:58 PM, J080885 wrote:

    It is imperative that HP reverse its renovating and start innovating! Corporate leaders that continue to outsource their people (including services and R&D) to third-world countries are absurd. These countries are third-world countries for a reason, their social inequalities subvert creativity.

    While technology is built on logic it requires creativity to resolve problems and innovate; Americans have a monopoly on this.

  • Report this Comment On June 04, 2012, at 4:47 PM, NobodysFool2011 wrote:

    Meg Whitman?? Seriously... What was HP thinking hiring that ex-Bain hag??

    Everyone knows the Bain strategy. Bleed the customers and employees dry to please the shareholders.

    What Whitman didn't destroy at eBay, her cronie and current eBay CEO John Donahoe is working hard to fill her clown shoes.

    Somebody at HP should have talked to eBay customers (the sellers and merchants) and ask if they were happy with Whitman.

    Unfortunately, at HP, Whitman doesn't have a captive audience to bleed dry.

    I know many people disgusted with Whitman's tactics at eBay who would never buy an HP while she is CEO. Myself included.

  • Report this Comment On December 22, 2012, at 10:39 PM, don1941t wrote:

    I won't even consider buying an HP printer any more. I have a perfectly serviceable laser jet that has no drivers for Windows 7. I'm upgrading my PC and my printer - neither will be HP. Massive layoffs and dead-end products? How about a different CEO?

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