HP’s CEO choice hints at software plan

It came as something of a surprise when Hewlett-Packard announced in September 2010 that its new chief executive would be Léo Apotheker, the former CEO of enterprise software vendor SAP.

Apotheker’s was not one of the many names that cropped up as the industry speculated on who might replace Mark Hurd, who stepped down in August after a sexual harassment investigation unveiled “questionable” expense practices.

For a Silicon Valley giant such as HP to appoint a man who has spent much of his working career in Walldorf, Germany, is unusual enough in itself.

It was also surprising given the circumstances of Apotheker’s departure from SAP. In January 2010, the company reported an 8% drop in annual revenues, the principal cause of which was a 24% drop in software licence sales. Weeks later, SAP’s board decided not to renew Apotheker’s contract.

Indeed, the two years during which he was CEO of SAP were two of its worst. An ill-advised attempt to raise support fees – presumably to counteract the plummeting licence sales – angered customers, while technological innovation appeared to stagnate.

However, then as now, the prevailing opinion among experts was that Apotheker had inherited an impossible task when he took the reins of a mature enterprise software company just as it was entering the deepest recession in decades. “Léo was in the wrong time, wrong place,” wrote Altimeter Research analyst R ‘Ray’ Wang at the time. “He entered a down market while in charge of a sinking ship.”

The third surprising element of the appointment was Apotheker’s background in software. He has dedicated his career to the business of selling applications, almost the only component of the enterprise IT infrastructure that HP does not make. The company’s choice of Apotheker as CEO could suggest, therefore, that it plans to change this state of affairs.

According to Martin Reynolds, a Gartner Fellow, HP stands to gain a lot by expanding its software business, which is today focused on systems management and infrastructure software. “Software is a very small piece of the company, but has the greatest potential for growth when leveraged with HP’s global reach,” he wrote following the news of Apotheker’s appointment. “HP is not constrained by a legacy applications business, and has an opportunity to reinvent itself as a provider of really new ideas.”

There is one other important element to this story, and that is the growing competition between HP and Oracle.
When Oracle acquired Sun Microsystems in 2009, its relationship with HP moved from a strategic partnership – 40% of Oracle implementations run on HP hardware – to one of ‘co-opetition’.

And while HP’s enterprise chief, Anne Livermore, appeared on stage at Oracle’s recent user conference extolling their shared interests, the two companies appear to be arming themselves with the personnel required to compete
with one another. Shortly after leaving HP, Mark Hurd joined Oracle as president. At the same time as it unveiled Apotheker as CEO, HP also announced that Ray Lane, Oracle’s former president, would be joining it as chairman of the board of directors.

Apotheker himself, of course, has plenty of experience battling Oracle. In fact, during his time as CEO of SAP, the German company was mono-maniacally focused on competing with Oracle, according to Gartner analyst (and former SAP employee) Thomas Otter. “SAP really suffers from Oracle-myopia,” Otter said shortly before Apotheker’s departure. His appointment as CEO of HP suggests that company may now be developing a similar obsession.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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