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Leo Apotheker, Hewlett-Packard's new CEO, charts a steady course

The tech executive, who took HP's reins after two previous CEOs resigned amid controversy, is working hard to mend internal morale and restore the Palo Alto company's standing as a Silicon Valley institution.

March 23, 2011|By Brandon Bailey

Reporting from San Jose — Hewlett-Packard Co. Chief Executive Leo Apotheker seems determined to keep his head down, charting a conservative course after taking the reins of a company that saw two previous CEOs resign amid controversy and headlines.

Apotheker laid out his long-term plans for the world's largest tech company this week in his first public speech since he was hired last fall. But there was no talk of dramatic reorganization; no big, splashy deals. Apotheker insisted that's not his style.

"My job is not to be a show master," he said later, using a term from his native German that means "master of ceremonies" or "game show host." "My job is to run a business."

In one of his first extended interviews since becoming CEO, Apotheker was courtly and good-humored as he discussed topics such as his own press coverage and the future of HP. But the 57-year-old tech executive also showed the harder edge for which he was known while running European software maker SAP — most notably when asked about criticism from Oracle Corp. CEO Larry Ellison, a longtime rival.

"Last time I checked, he wasn't running HP," Apotheker said dismissively.

Apotheker said his strategy would move HP in a new direction while building on its existing strengths. At the same time, he said, he's working hard to mend internal morale and restore the Palo Alto company's standing as a "hallowed" Silicon Valley institution.

"That luster, that particular distinction, I believe had kind of faded away in the last years," Apotheker said. Although the company may have "lost its soul," he added, he believes it is finding it again, "and finding it quick."

Apotheker suffered a setback Wednesday when HP investors gathered at an annual meeting voted against proposed compensation packages for top executives, signaling that shareholders want more influence over how managers are rewarded.

At the meeting held in a hotel in Arlington, Va., the company said 50% of shareholders voted against approving the pay packages, while 48% were in favor. At the same time, shareholders ratified a slate of 13 directors.

The nonbinding vote on pay was hailed as a victory by Institutional Shareholder Services Inc., an advisor on corporate governance matters. The proposed compensation would reward executives even if HP performs poorly, ISS said. The firm also faulted HP for its choice of directors, saying new board members with ties to Apotheker may not govern independently.

Morale at HP clearly suffered after last summer's abrupt departure of CEO Mark Hurd, who was forced to resign in a scandal over his relationship with a marketing contractor. But Apotheker said HP was already weakened in such areas as "innovation, the time it takes from innovation to going to market, and the way people feel that they can actually make something happen."

Hurd was widely praised on Wall Street for cutting costs and building HP into a financial powerhouse. Critics say he cut back on research, although HP disputed that in the past. In addition, employees complained that Hurd and previous CEO Carly Fiorina had abandoned the "HP way" of collegiality and respect. Fiorina also left after a falling-out with HP's board.

Apotheker, who has reversed recent pay cuts and promised to increase research funding, said his biggest reservation about taking the HP job was the company's size — it has 320,000 employees around the world and $126 billion in annual sales — and the complexity of its business, which includes selling printers, PCs, commercial computer systems and tech services. SAP has 53,000 workers and $17.5 billion in annual sales.

But after "rolling up my sleeves and digging into the business," Apotheker said he believed that HP's size was an advantage, giving it financial and logistical leverage to expand in new markets.

The strategy he outlined this week at a meeting with analysts and reporters calls for expanding in selected categories of commercial software, a new emphasis on HP's webOS operating system for PCs and gadgets, and a bigger role in cloud computing — the practice of delivering information and services over the Internet.

Although HP already sells hardware and some software for data centers that are the heart of cloud computing, Apotheker said HP would soon offer its own "public cloud," a platform on which businesses and developers could store data and operate online services, as well as an application market for businesses and consumers.

Several analysts reacted with qualified approval, saying Apotheker's strategy could push HP into new areas that offer high profit margins and growth potential, such as computer security and data analysis, while continuing to stoke demand for its hardware and consumer gadgets.

"CEO Leo Apotheker unveiled a growth strategy that we think appeared to be measured and conservative," JPMorgan Chase & Co. investment analyst Mark Moskowitz told clients in a report headlined "HP hits strategic direction down the middle of fairway."

But HP faces stiff competition from other tech giants, including Inc., Apple Inc., Oracle and IBM Corp. And Apotheker did not spell out the operational details of HP's cloud program, other than to say it will use a combination of its own and other companies' software.

"It seems clear that Apotheker has significant work ahead," Barclays Capital analyst Ben Reitzes said in his report to investors.

HP shares rose 33 cents to $42.07 on Wednesday.

Bailey writes for the San Jose Mercury News/McClatchy.

Bloomberg News was used in compiling this report.

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