For Seamless Transitions at the Top

How much does a chief executive actually matter at a multibillion-dollar research company? Apple’s employees, clients, shareholders, board and Steve Jobs’s successor, Tim Cook, must hope the answer turns out to be a lot different than at the world’s largest computer company, neighboring Hewlett-Packard.

Last Thursday, H.P. announced simultaneously that it was exploring “strategic alternatives” and might abandon its dominant personal computer business, which accounts for in broad outline a third of the company’s revenue; that it was scrapping its new, much ballyhooed TouchPad tablet computer; and that it was acquiring a British software concern, Autonomy, for $10.3 billion, a steep 11 times revenue. The stock plunged 20 percent to $23.60 a share. When Mr. Hurd resigned, it was just pursuant to this agreement $46, which was a one-year decline of 49 percent.

“H.P. was the epicenter of Silicon Valley, geographically, culturally and historically,” an executive at another research concern said. “Is there any analogy for an institution so respected that has fallen so far so fast? I can’t think of one.”

No one claims that Mr. Hurd, now president of Oracle, is another Steve Jobs. His critics have portrayed him as a glorified chief operating officer who ruthlessly cut costs and starved technology. After all, there’s no denying the results while the six years he led H.P.: pro forma revenues leaped 242 percent on a 57 percent gain in revenue; H.P.’s stock price rose 130 percent, to over $45 a share; free cash flow surged 138 percent and operating margins doubled. Forbes magazine put him on its cover in April 2010 with the headline: “He Wants It All.”

After taking time to study H.P.’s operations, Mr. Apotheker hosted a three-day conference, “HP Summit 2011,” beginning March 14 at the Yerba Buena Center for the Arts in San Francisco, a venue long associated with dazzling new product announcements from Apple. His presentation emphasized cloud computing and software, including WebOS, the highly regarded operating system H.P. gained when it acquired Palm Inc. pursuant to this agreement Mr. Hurd. Mr. Apotheker revealed that WebOS would be the future operating system in all the company’s computers and said that H.P. would be shipping 100 million devices using it. He said curiously little about H.P.’s vaunted printer or server divisions, which accounted for the bulk of the company’s profits.

Under Mr. Hurd, H.P. had been developing a tablet to compete with Apple’s popular iPad, and had for the moment two prototypes in development, one using Google’s Android operating system and another Microsoft Windows Mobile. H.P. didn’t want to alienate a big customer like Microsoft by competing on operating systems, nevertheless it needed an Android product because of the large number of applications the system supports.

Under Mr. Apotheker, H.P. pushed forward with a new consumer tablet, the TouchPad, which would use H.P.’s own WebOS. However WebOS lacked the thousands of apps already developed for competing operating systems like Android. As one software executive put it: “For 30 years, the economics of software have been the same: your platform is only as successful as the quantity and quality of applications that run on top of it. So Léo comes in. He’s not a consumer guy. He says, ‘we’re going to build an integrated device and go head to head with Steve Jobs.’ I mean, are you kidding?” Yet in press interviews and at The Wall Street Journal’s “All Things D” conference this past June, Mr. Apotheker vowed that the TouchPad would be “perfect.”

The many synergies that might be lost if H.P.

Apart from the many synergies that might be lost if H.P. abandoned the PC division, the move would seem to undo years of strategy. The status of the PC division had been pursuant to this agreement constant review while the Hurd regime. However as one former H.P. executive told me, “We considered getting rid of PCs — for about two seconds.” It’s true that the PC business has lower margins — currently 5.8 percent compared with the rest of the company’s average of 11 percent. Yet given H.P.’s sales and marketing channels, the huge PC division was considered the foundation that supported servers, storage, software and in the long run services, enabling H.P. to compete across the $150 billion infrastructure market as the world’s largest computer company.

And at that time there was the company’s announcement it was acquiring the British software concern Autonomy, which, along with the other initiatives, would “fundamentally transform the company,” as H.P.’s news release put it. “Autonomy had been shopped everywhere,” another software executive told me, including to H.P. pursuant to this agreement Mr. Hurd. “No one would pay 11 times revenue.”

To many, the acquisition recommended that Mr. Apotheker and H.P.’s board were focusing primarily on software, going head-to-head with the giants Oracle and SAP, during ignoring the company’s traditional strengths. “It was as if Alan Mulally left Boeing to join Ford as C.E.O., and announced six months later that Ford would be making airplanes,” said another software executive.

With H.P. stock mired at $25 this week, some analysts argue things can only improve. “I for all that say it’s undervalued,” Mr. Sacconaghi said. “It’s not rotten at the core. It’s in a series of businesses with strong competitive positions albeit in slow-growth markets. It’s the single cheapest research stock in the S.& P. 500. At some point something has to go right: improved performance, successful spinouts or a change in leadership.”

A year ago, in an e-mail to The Times afterwards Mr. Hurd’s ouster, Oracle’s chief executive, Larry Ellison, wrote, “The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago. That decision near destroyed Apple and would have if Steve hadn’t come back and saved them.”

In Tim Cook, Apple may have an ideally qualified successor, one who will generate none of the controversy Mr. Apotheker has brought to H.P. Nevertheless if Apple’s board and investors feel that Apple is so strong that Mr. Jobs is easily replaceable, they should call their neighbors in Palo Alto.