HP Counting on Apotheker to Drive Growth in Software Business

Hewlett-Packard will draw on former SAP CEO Leo Apotheker's experience as it adds software to its diverse IT infrastructure lineup and expands into international markets.

With software veteran Leo Apotheker at the helm, Hewlett-Packard is poised to bring applications into its arsenal of PCs and servers.

It took only 55 days, but the technology giant announced Sept. 30 that it had chosen Apotheker, who last sat in SAP's top seat, to be the new HP CEO. Apotheker replaced Mark Hurd, who left amid a scandal involving accusations of sexual harassment and claims of improper expenses, then was hired as Oracle co-president.

HP introduced its new CEO to investors on a conference call on Oct. 1. During the call, Apotheker said he believed Hewlett-Packard was uniquely positioned as big technology companies pull together hardware, software and services businesses, but it was "undervalued," he said.

"There are few companies that can even come close to what HP can do in hardware," Apotheker said.

However, HP is "not grounded" in software, he said, and the company needs to pay more attention to building up that part of the business.

"Software is the glue," Apotheker said. "It's how we can make sure that the various parts of our technology work together."

Industry analysts say HP needs to dramatically expand its software portfolio to lessen its dependence on low-margin PC sales and to successfully fight back rivals such as Oracle, Cisco Systems and IBM, which offer comprehensive software offerings integrated with hardware. In introducing Apotheker, HP officials said the company needed a strong executive that could steer the company internationally, especially into high-growth and emerging markets, experience that Apotheker brings to the table.

Apotheker, whose name had not appeared during the flood of rumors about possible HP CEO choices, spent most of his career at SAP in various senior executive roles. He rose from deputy CEO to co-CEO before finally becoming the sole CEO in 2009. During his 18-month tenure, he cut costs and oversaw some of the company's biggest acquisitions, before abruptly in February resigning after SAP had its first annual sales drop since 2003.

While calling the board "unpredictable" and Apotheker a "wild card," Gleacher & Company analyst Brian Marshall wrote in a research note that the appointment was not a "thesis changer." Under Hurd, HP has been moving aggressively into the software and services businesses, and appointing someone with proven software expertise merely cements the company's strategic direction.

Marshall called software the company's "Achilles heel," as software accounted for an anemic 3 percent of total revenues, but acknowledged that HP has been aggressively acquiring companies to help build up the business, including 3PAR, Palm and EDS.

As the world's biggest maker of business-management software, SAP can help HP establish itself in the enterprise software space. "We would not be surprised to see HP and SAP get closer," Cowen and Co. analyst Peter Goldmacher said in a research note.

When pressed about a relationship with SAP, Apotheker played it safe on the conference call, saying merely the two companies were partners and there could be "great opportunities" ahead.