Analysts: New HP Chief Must Regroup Quickly

By Paula Musich  |  Posted 2005-04-04

Although Hewlett-Packard Co.s newly minted CEO said he plans no major changes any time soon, industry observers say Mark Hurd has little time to waste in reshaping parts of the struggling company.

"There is a short list of things he has to address immediately: what happens to the enterprise server business, the enterprise services business and the OpenView business. I frankly dont think he has more than 30 to 45 days to declare what hes going to do and begin to do it," said Michael Dortch, an analyst at Robert Frances Group Inc., in Westport, Conn.

One bright spot for HP lately has been the services operation, which has won high-profile outsourcing deals competing against rival IBM Global Services.

"Weve been very happy with the support weve gotten from the services organization and the relationship we have. We dont anticipate there to be any changes associated with Mark Hurds appointment," said spokesperson Rob Shimp, of The Procter & Gamble Co.s Global Business Services unit, in Cincinnati, which signed a 10-year, $3 billion IT outsourcing deal with HP in 2003.

But as Hurd looks to improve profitability across HPs disparate businesses, there are possible changes to IT outsourcing services that could help improve the near-term bottom line, said Andy Efstathiou, an analyst who follows enterprise computing at Yankee Group Research Inc., in Boston.

"Large deals have a propensity to have negative margins in the early years, and they have much larger margins in later years. Where hes struggling with margin now, I would anticipate he will re-evaluate how rapidly they want to go after big deals," said Efstathiou.

HP Services, led by Executive Vice President of Technology Solutions Ann Livermore, a 22-year HP veteran, could experience an executive shake-up if Livermore decides to leave in the wake of Hurds appointment. She had been considered an internal candidate for the CEO position.

"I know Ann is a longtime HP veteran who will stick with the company if she likes what new management will bring," said Eric Rocco, an analyst at Gartner Inc., in Lowell, Mass.

On the software front, Hurd will be challenged to improve the effectiveness of OpenView marketing, analysts say.

Although the software languished for years under different product groups, it has seen more investment in recent years and is now viewed as an asset, the analysts say.

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