When Hewlett-Packard (HP), the world’s second largest technology company, announced its FY 2012 results four days ago, the part that got the most headlines was the $8.8 billion write-down mostly resulting from an alleged accounting scam in Autonomy, a company it had acquired a year ago. Sadly, such has been the stream of bad news from the legendary tech firm, that the losses stemming from the number fudging at a company it acquired for $ 10.3 billion, are just par for the course. HP’s core businesses are all ailing, signs that California’s original garage start-up, the company that put the Silicon in the Valley, is in a steep decline.
Total revenues are down 5% and those of the key Personal Systems, Printing, Services and Enterprise products businesses are down 14%, 5%, 6% and 9% respectively. These businesses span almost all of what HP does today. For long-time HP watchers though, the current disaster scenario is a tale that has been unfolding for more than a decade now. And it is a tragic story of a company that at some point wilfully abandoned its rich heritage of strong engineering and research-driven portfolio and started down the path of ill-conceived and ill-executed acquisitions and a welter of me-too product lines that had to be rapidly abandoned.
While it may be short on profits and growth, or on product lines that can drive either, HP has had no shortage of CEOs (five changes since 2006, including two interim CEOs) or of CEO sackings (two during this period). In this time, a Chairperson had also had to resign because of a spying scandal wherein she was discovered to have ordered wiretapping of other board members by a security company.
Chapter one of the HP disaster story was writ in 2001, with its $25 billion acquisition of struggling PC-maker Compaq which in turn had recently acquired another ailing manufacturer, Digital Computer. At the time, the merger was bitterly opposed by Walter Hewlett, son of legendary founder Bill. Walter saw the merger as an abandonment of ‘the HP way’ and a pursuit of size for little more than executive aggrandisement. In the years that followed, HP acquired Mercury Interactive for $ 4.5 billion, Electronic Data Systems (EDS) for $ 13.9 billion, 3Com for $ 3.9 billion, 3Par for $2.4 billion, Palm for $ 1.2 billion and Autonomy for $ 10.3 billion, besides dozens of smaller companies for lesser sums. Each of the big-ticket acquisitions eventually turned into a millstone around the company’s neck. This quarter’s Autonomy write-off comes after last quarter’s $ 8 billion write-off on EDS.
Even without the fraud, the Autonomy acquisition was a puzzle. It was engineered by HP’s then CEO Léo Apotheker, who left suddenly soon afterwards. However, before leaving Apotheker announced and then reversed an exit from the PC business. After an interim CEO, he was replaced by the current boss Meg Whitman, fresh from an unsuccessful bid at being Arnold Schwarznegger’s successor as governor of California and before that, a stint as eBay CEO that included the disastrous acquisition of Skype.
Now, HP has $ 30 billion of debt and no product line it can bank upon. Seventy three years after Bill Hewlett and Dave Packard worked in a car garage to start the first electronics company in what was then a valley of orange groves, Hewlett-Packard is at its lowest point ever. Over the last decade, its market cap has tumbled by nearly 60%. In a way, this is where IBM found itself in 1993 or Apple in 1997. Apple was revived by Jobs and IBM brought back from the brink by Lou Gerstner. But HP’s two Jobs’ are long dead and today’s tech CEOs hardly seem to have the ability to do what Gerstner did.