HP Hip Plop

I would not want to be an HP employee this week. Well, actually I have not wanted to be one since Bill and Dave went to the big database in the sky.

leo-clownLast week, in rapid fire, HP said they will likely get out of the PC/laptop business (either through an Agilent-like spinoff or outright sale), killed their newborn webOS phone and slab business, and bought a relatively obscure software company for a huge premium. Their stock dropped about 30% and HP aficionados are still staring, jaws agape, in disbelief.

Change is the only thing of permanence, and that applies doubly in the high tech business. Tech companies are the most agile known, and many have completely reinvented themselves when faced with undeniable market shifts. Others change because better opportunities exist. HP’s newest CEO, Leo the Lively, knows that software companies make significant margins (Oracle has an overall margin of 30%) on peddling well organized electrons. Leo wants HP to change in that direction. Reportedly, HP’s PC business has profit margins of 7%, though their volume through retail channels makes them the #1 vendor. Though HP’s PC volume and revenues were impressive, sales of consumer PCs and laptops have been plunging (around 23%) and the profit HP earns from PCs and laptops would soon enough be unworthy of staying in that business. So like IBM before them, they seek to exit the soon-to-be unprofitable.

They’ll continue gigging consumers for overpriced ink cartridges, which appears to be a damned (and) good business.

Oddly, they are also scrapping their webOS product line, dumping Touchpads and “Palm” phones. Though they never received respect or respectable reviews, the main catalyst for declining consumer PC sales are slabs and smart phones. HP is wisely shuttering the declining PC business, but have simultaneously aborted their newborn in the one consumer market that has growth potential. Combined, it makes Leo look like a consumer luddite, lacking desire to peddle products to the proletariat.

Which likely makes Steve Jobs smile. He knows how to market to mobs.

Change for change sake is a rarified form of idiocy. I don’t accuse Leo of blindly altering HP’s fabric, but the timing and lack of commitment to product lines makes Apotheker look like a banana republic dictator, changing rules, laws and strategy at personal whim as opposed to long range product planning and revision. Given that HP’s Touchpad was introduced a mere 53 days ago, it was never given a complete chance in the market — no version 1.1, no second generation, nada. It is bizarre for a first entry into a relatively untapped market to be a sacrificial lamb on the altar of ambition.

Today’s market strategy lesson is a two-fer. First, any strategy should not be implemented in ways that cause people inside and outside of your company to lose faith. Stockholders bailed and HP employees, on a private discussion forum, are confused and a bit ashamed. It is better to build your new strategy and have it well-anchored before you jettison the old one. Secondly, it is bad policy to display executive knee-biting as part of the transformation process. For HP execs to bravely proclaim that killing off a seven week old product line based on a $1.2B investment (the Palm acquisition) was wise is unwise. To do so while paying an 80% premium for a software company that is not destined to become a center post of a software strategy simply begs for Leo to don a clown nose.

Change has to have a purpose and a plan. You may not be able to disclose the plan, but causing investors and employees to doubt you have one while hacking away parts of the current strategy is like a politician saying “Trust me, I’m with the government.” It lacks faith-building substance.


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