Almost two years into her tenure as CEO of Hewlett-Packard, Meg Whitman is in the middle of a multiyear turnaround strategy and is now putting executives in place who she believes give the company the best chance of succeeding in an increasingly difficult and competitive environment.
Whitman has already reshaped the company's board of directors and in June replaced the executive overseeing the struggling PC business, a move applauded by some analysts as necessary after several missteps in the troubled but important unit.
Now, following what she called a "very disappointing" quarter, Whitman is removing Dave Donatelli as executive vice president and general manager of HP's $30 billion Enterprise Group, opting to bring in COO Bill Veghte to oversee the massive business unit that includes servers, storage, networking and technical services. Donatelli is staying with the company on "special assignment."
Whitman noted that issues such as outside competition and a softness in the China and European markets hurt sales of such products as x86-based servers and some storage offerings. However, she said she is confident in the company's product lineup, and that much of the Enterprise Group's problems were the result of poor execution and management.
"Overall, the Enterprise Group's performance was very disappointing," she said during an Aug. 21 conference call with analysts and journalists about the quarterly numbers. "Mainstream server weakness was driven by execution challenges, competitive pricing and a misaligned go-to-market model. This impacted our revenue and profitability. The net impact of these execution challenges is an expected loss of five points of market share on a revenue basis."
HP is "entering the next phase of the turnaround, and my view is we need to accelerate into the next turn," she said. "And my job is to get the right people in the right job, at the right time, with the right experience and domain expertise. As I evaluate the performance of each of these businesses … I have got to match the right executive to the challenge at the time."
HP saw overall revenue in the quarter fall from $29.7 billion last year to $27.2 billion this year, though net income hit $1.39 billion. The Enterprise Group saw revenue fall 9 percent, with industry-standard server sales dropping 11 percent and storage revenue falling 10 percent. In a company struggling to find solid financial footing, that wasn't going to cut it.
"It's possible she's saying, 'I have more credibility as a leader now, and I need to shake things up,'" Toni Sacconaghi, an analyst with Bernstein Research, told the New York Times. "Revenue growth across the company has been very weak."
Charles King, principal analyst with Pund-IT Research, said the past two financial quarters "have been pretty grim" for HP.
"In a sense, [Donatelli is] being held personally responsible," King told eWEEK. "But at the same time, this gave Whitman the opportunity to remove Donatelli, who was part of the old guard, and put someone in place who more aligns with what Whitman wants to do."
HP is being hit hard by the downturn in the global PC market, as buyers turn their attention and tech dollars to smartphones and tablets. In addition, the x86-based servers have become commoditized and are under pressure from competitors, and the shift toward more high-margin enterprise solutions is a difficult one, pitting them against such competitors as IBM and Cisco Systems.
And while the company has been able to drive down expenses—thanks in large part to a plan to cut 29,000 jobs, more than 22,000 of which are already gone—Whitman said that "HP's turnaround will happen on the back of great products and services."