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.”
HP CEO Whitman Putting Her Own Executive Team in Place
In June, Whitman reassigned Todd Bradley, who had been executive vice president of HP’s Personal Systems Group, and replaced him with former Lenovo and Acer executive Don Weisler, who had been with HP as senior vice president in Asia. The move was applauded by some analysts, including Trip Chowdhry of Global Equities Research.
“Removal of Todd Bradley from PSG is very welcome news for investors,” Chowdhry told eWEEK in an email at the time. “Todd Bradley had made a series of strategic mistakes; his departure should have happened long before.”
After the Enterprise Group’s poor financial quarter, Whitman turned her focus on Donatelli. However, Pund-IT’s King said that while the group fared badly, it wasn’t all due to Donatelli’s management. In some areas, it was a case of bad timing. The Business Critical Systems (BCS) unit, which includes high-end servers based on Intel’s Itanium platform, was hit hard when Oracle announced in 2011 that it would no longer port its business applications to Itanium. A court last year ruled against Oracle, but by that time BCS had lost a lot of customers and has yet to recover.
The $13.9 billion acquisition in 2008 of services firm EDS has not worked out like officials had hoped, and HP’s sizable x86 server business is under price pressure from Dell.
“In Donatelli’s case, it was sort of the luck of the draw,” King said. “He was the golden boy when things were going well, and now that it isn’t, he’s had his head on the block.”
In addition to Donatelli’s reassignment, Whitman named Henry Gomez, the company’s executive vice president and chief communications officer, as chief marketing officer, replacing Marty Homlish, who also was reassigned within the company.
Whitman said she is happy with the leadership team she has in place now. It remains to be seen, however, whether these new leaders can find a way to fix an ailing company. In response to an analyst’s question, Whitman noted that she does tend to promote from within, even while saying the company needs new ideas from its executives.
“We’ve got a lot of very talented executives in the company who have been in second- or third-level jobs, who are more than capable of stepping up,” she said. “I tend to want to go with people who I think have the fresh ideas and the energy and the enthusiasm, but also don’t have to start at the beginning of a learning curve.”
Whitman said she wants her executives to set realistic targets, deliver on their commitments and think in the long term.
“We are trying to set HP up for another really great run here,” she said. “You have got to decide where you are going to play and how you are going to win because this isn’t all about revenue growth. … Then make sure that you have done a perfect job of segmenting your market and marrying the right products to that market segmentation.
“If you do that and manage your cost structure, we will have a very successful business here. … This is something historically HP has done really well, but it is not being done as well as it could be in all parts of the business. It needs to be a real strength of the company going forward, especially as we are navigating these incredible shifts in the industry. It’s not business as usual in our industry, and we have to be better at it than we have been in the last year or two.”