March 13, 2011 8:42 pm

HP chief faces Wall St scrutiny

Léo Apotheker, Hewlett-Packard’s chief executive, will on Monday try to convince restive investors in the world’s top-selling technology company that he can push deeper into more profitable businesses and limit the damage from disappointing sales of personal computers.

In his first meeting with Wall Street professionals, Mr Apotheker is set to present an overall vision that calls for HP to keep its major position in computing hardware and add more profitable software to the mix while tying both to profitable services.

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The session will be a coming-out party for the former head of business software maker SAP. Mr Apotheker has kept a low profile during his four months atop HP, spending time travelling the company’s far-flung empire and meeting big customers.

Nevertheless, his performance will be critical. Mark Hurd, Mr Apotheker’s predecessor, was well regarded by Wall Street for cutting costs at HP even as he made big bets on new business with acquisitions of services group EDS, networking concern 3Com and smartphone pioneer Palm.

“The company needs to lay out strategically where they want to take the business,” said Daniel Flax, the HP analyst at investment firm T Rowe Price, which is one of HP’s 20 largest stockholders. “They need to lay out what the margin and earnings potential of the company is.”

Mr Hurd was forced out last year after a sex harassment probe led the board to conclude that his expense reports concealed a personal relationship with a marketing functionary and to lose trust in him. He has since joined as a top officer at Oracle, which had already deepened its rivalry with HP by buying high-end computing specialist Sun Microsystems.

Mr Apotheker has implicitly criticised Mr Hurd’s tenure, opining in one interview that the company had “lost its soul”.

Mr Apotheker has his work cut out for him. HP is now so large, with $126bn in annual revenue, that massive change would be difficult in the extreme. And as it has moved into new areas, it is facing entrenched competitors. Joining a list that already included IBM and Dell in services and computing gear and Oracle in high-end software and machines are Apple in tablets and Cisco Systems in networking.

Mr Apotheker has suggested he wants to start by doing more with what he has, yoking together an enlarged sales force to make sure that the former EDS consultants tout HP products and that HP hardware ships with HP software. He also plans to continue making acquisitions, especially where he can use his knowledge of the software industry.

But investors want to hear more than that, especially because HP’s first quarter entirely under Mr Apotheker ended in disappointment. HP shares fell as much as 12 per cent in a day last month after it missed the revenue targets for its first fiscal quarter and slashed sales expectations for the full year by $2bn.

On the earnings call, Mr Apotheker blamed two temporary problems: a 12 per cent drop on consumer PC revenue as notebook PC demand slumped, especially in China, and a shortfall in short-term services contracts. But it would help Mr Apotheker’s cause if he could do more to convince investors that the Microsoft-based PC, already a low-margin item, is not being ushered into permanent decline by tablets and smartphones – or that if it is, the WebOS operating system HP bought with Palm is the perfect hedge.

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