How Long Will Hewlett-Packard Give Whitman a Free Pass?

Turning Hewlett-Packard (NYSE: HPQ  ) around was always going to be a tall order, there's no denying that. The challenges were many and varied when Meg Whitman took the reins as CEO in September 2011. Today, you can't help but wonder if Whitman pines for the good-old days as CEO of eBay.

The Autonomy acquisition fiasco, stepping through what had become an executive revolving door, and leading a company littered with outdated products and services were just some of obstacles Whitman has faced in nearly two-and-a-half years of leading HP. But as HP shareholders mull over Whitman's tenure, it's time to ask some difficult questions.

Is the past really the past?
Whitman isn't to blame for the Autonomy mess; HP announced its intention to acquire the software vendor a month before she took over. So some investors have given her a mulligan on that one, and the massive $8.8 billion writedown HP was forced to take as a result. But should they have?

Whitman was serving on HP's board when the Autonomy deal was done, and was named in the $1 billion lawsuit that shareholders filed afterward. The assertion was that she and other senior execs tried to sweep the problem under the rug, until May 2012 when Whitman and HP were forced to come clean.

When Whitman said she inherited a company with no "silver bullets," meaning a tired product lineup in a declining PC market, she was spot on. In part because of HP's slow transition to growth markets like cloud computing and big data, Whitman didn't expect significant changes until at least 2015. Makes sense: Turning around HP is like trying to make a U-turn in an ocean liner. But how long should investors give Whitman to demonstrate something that indicates her plan is working?

HP is not alone
There are a lot of similarities between longtime rivals and cohorts HP, IBM (NYSE: IBM  ) and Microsoft (NASDAQ: MSFT  ) when it comes to turnaround efforts and changes in strategic direction. Like HP, IBM, and Microsoft were both slow to the cloud and big data, and in Microsoft's case, mobile devices. But that's about where the similarities end.

Already the No. 1 provider of big data solutions, IBM is by no means content, as evidenced by its decision to invest $1 billion to open a big data division focused on its cutting-edge Watson computer. The Watson Group is expected to help meet IBM CEO Ginni Rometty's aggressive goal of reaching $20 billion in big data revenue by 2015. Somehow it's difficult to imagine HP growing its big data revenue as impressively.

Microsoft's mobile ambitions are well documented, and so too are its gains in smartphone OS market share and the pending acquisition of Nokia's devices and services unit. Every bit as remarkable are the results of Microsoft's efforts to grow its cloud computing revenue. Last quarter, Microsoft enjoyed a 103% jump in commercial cloud revenue; that, combined with top-line revenue growth even as it executes its shift in business strategy, is what differentiates it from HP.

Final Foolish thoughts
No one who follows HP should be surprised it hasn't returned to its former glory in two-and-a-half years, that'd be a miracle. But as IBM and Microsoft have demonstrated, it is possible to make significant transitions in a relatively short period of time and have something to show for it. IBM and Microsoft aren't growing as fast, overall, as some Fools would like, but in strategic markets like cloud computing and big data, and mobile in Microsoft's instance, both are providing investors with tangible results.

HP? A strong performance in its Software as a Service business in fiscal 2013's fourth quarter was about the only positive indication that Whitman's focus on cloud computing and big data is finally beginning to take hold. HP reported revenue declines in five of its six operating segments, though that still beat lowered analyst expectations. HP's annual revenue has also declined for three straight years and counting.

At this stage in HP's turnaround, and halfway through Whitman's third year at the helm, shareholders have the right to see some results. As it stands, CEO-speak from Whitman, such as, "Our Q4 results demonstrate that HP's turnaround remains on track heading  into fiscal 2014," following HP's last earnings release, is about all investors have to hold on to. That may have been fine a year ago, but it's time to start delivering.

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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 January 10, 2014, at 4:00 PM, Bshaef wrote:

    It will take HPQ a long time to rid itself of Mark Hurd's influence. He was a bookkeeper with a wondering eye, trying to run a high tech giant whose solution to everything was to layoff more employees. I believe Ms Whitman is much smarter than that.

  • Report this Comment On January 10, 2014, at 5:32 PM, SierraJW wrote:

    As a stockholder and investor, I give Meg Whitman kudos for the leadership and honesty she has provided. You admit this is a tough job, but bringing the stock price up 230% in 14 months is a huge recovery that you do not acknowledge or even mention.

    There is still a lot of work to do, but I have not seen the competence and honesty that she exhibits since Dave Packard and Bill Hewlett were still active in the company.

    Fiorena's pact with the president of Compaq was a severely flawed strategy, designed to give each of them $115 million bonuses! And on top of that, cancellation of their tablet by Apotheker was another albatross to overcome.

    A major problem with American business is the need to show progress every quarter.

    I still have confidence that Whitman is doing the job that is needed to develop a strong and viable busness.

  • Report this Comment On January 10, 2014, at 5:35 PM, PropioFurbo wrote:

    Tim, I believe you have a problem with fractions. Twice, you attempted to accelerate the amount of time Meg has been at the helm. The first time you said "... leading a company littered with outdated products and services were just some of obstacles Whitman has faced in nearly two-and-a-half years of leading HP." The second time you said " At this stage in HP's turnaround, and halfway through Whitman's third year at the helm..." Meg became CEO on 9/22/2011 precisely 2 years 3 months 19 days ago. The closest you came to being accurate was using the word "nearly" in the first instance. In the second case, you were flat out wrong and misleading. How can anyone take you seriously?

  • Report this Comment On January 10, 2014, at 5:41 PM, PropioFurbo wrote:

    SierraJW, I heartily concur with your assessment of Meg's strengths. She is the most competent and straight talking CEO that HP has had in many years and someone who I genuinely feel has the best interests of the company at heart versus her own self-interests.

  • Report this Comment On January 10, 2014, at 5:57 PM, emilykulish wrote:

    The problem with HP is it has lost its direction. It should have focused on building high quality products to compete with Apple, go after the high-margin business. But instead, they are going after low cost and low margin business, which they really cannot compete with cheap OEM based in China and Taiwan.

    Meg Whitman is stupid to call Microsoft a competitor, now HP is in a helpless position - it wants to endorse Chromebook and Android, but that will only lower its revenue and profit faster. A typical Chromebook / Android tablet only sells for about $199, with competitors like Acer, Asus and Lenovo, the profit margin is much lower than a Windows laptop / tablet.

    Even if HP can dominate the Chromebook and Android market, it's revenue and profit will shrink by at least 50%, not to mention it is far behind Samsung, Acer, Lenovo and Asus and many other Chinese cheap OEMs. HP is doomed.

  • Report this Comment On January 10, 2014, at 7:20 PM, PropioFurbo wrote:

    emilykulish wrote "HP is doomed". Are you serious? Is this how you evaluate all companies by looking at one sliver of their business and then arriving at a general conclusion based on that narrow vision which in and of itself is totally bogus. Let me enlighten you a bit. For your information, HP is much more than just a PC company.

  • Report this Comment On January 10, 2014, at 8:40 PM, emilykulish wrote:

    PropioFurbo: many people associate PCs with Microsoft and Intel, but Microsoft and Intel (esp. Microsoft) are more diversified than HP.

    Look at HP, it is huge, but it has no bright spots at all. Look at its financial result, almost every division is shrinking. It has lost market share to Lenovo (and Dell) so quickly, and it is trying to offset it by selling cheap Chromebooks - what is the revenue / profit margin? Does HP have any advantage in competing with Samsung and Acer on cheap Chromebooks?

    HP probably will not be out of business in a few years. But Meg Whitman has no vision, HP certainly has no future.

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