AllThingsD » Léo Apotheker

Oracle to Court: Let's Try SAP Again

Arik Hesseldahl — Tue, 07 Feb 2012 09:50:41 +0000

Here we go again. It looks like one of the ugliest trials in the history of the software industry is about to repeat itself.

Last year, the judge offered Oracle a choice: Accept a judgment of $272 million in damages, reduced from $1.3 billion awarded at trial, or seek a new trial. Oracle says in court filings that it wants a new trial.

The key passage of the two-page court filing reads as follows (the word “remittitur” refers to the judge’s previous order reducing the award):

Oracle has no choice but to elect a new trial, as accepting the remittitur would force Oracle to risk waiving its right to appeal the Court’s decision on the motions for judgment as a matter of law and for a new trial. Oracle’s objective is to obtain clarification of the law and, if it is right about what the law is and what the evidence supports in this case, to vindicate the verdict of the jury and Oracle’s intellectual property rights as a copyright owner. Accepting the remittitur would be contrary to this objective.

And that means that the whole thing starts over again.

Calling the $1.3 billion award “grossly excessive,” U.S. District Court Judge Phyllis Hamilton in February granted an SAP request to throw out the award. Hamilton said that Oracle never proved that it lost enough business to justify so large a judgment.

Oracle had won the award in November, after accusing SAP’s now-shuttered TomorrowNow unit of copying its software without paying appropriate licensing fees. It had been the largest judgment ever in a copyright infringement case.

At trial, Oracle accused SAP’s now-shuttered TomorrowNow business unit of illegally downloading Oracle software and then making several thousand copies of it, in order to avoid paying the relevant license fees that are Oracle’s financial bread and butter. Oracle ultimately won the claim, but then the fight turned to damages.

Lawyers for Oracle had argued that the company’s damages should be tied to the value of a hypothetical license that TomorrowNow would have had to pay for the software, had it been properly licensed. For its part, SAP had argued that, as competitors, damages should have been calculated based on profits lost by Oracle and gained by SAP as a result of the infringement, and as such is in a much lower range than what Oracle argued for.

The case has caused a lot of personal enmity between Oracle and SAP, as well as with Hewlett-Packard, especially during the 11-month period when former SAP co-CEO Léo Apotheker was CEO of HP. Apotheker’s first days on the job at HP were marred by his apparent absence from HP headquarters, in what couldn’t help but look like an attempt to avoid being served with a subpoena. Maybe Oracle will try again.

HP CEO Whitman Earned One Dollar Plus $16 Million in 2011

Arik Hesseldahl — Fri, 03 Feb 2012 15:27:02 +0000

Hewlett-Packard released its annual proxy statement this morning, which, among other things, gives a look at what its top five executives made last year. Here’s the rundown:

CEO Meg Whitman, who upon becoming CEO agreed to take an annual base salary of $1, received more than $16 million worth of stock awards. Add on another $372,598 in other compensation, and the total value of her package was north of $16.5 million. Much of that other compensation stemmed from the period when Whitman was a director on HP’s board, and before she was CEO.

Under her employment contract, Whitman received an option to purchase 1.9 million shares of HP stock at a strike price equal to the value of the share price on the date of the grant, and subject to vesting requirements over time. As of today, 1.9 million shares would be worth almost $55 million. Whitman, the filing says, was the only one among the company’s named executive officers to receive an options award during 2011.

The filing also shows that CFO Cathie Lesjak made a base salary of $825,000, plus $9.3 million in stock-based compensation, $679,000 in incentive pay and $101,500 in other compensation, for a total of more than $11 million.

Todd Bradley, executive vice president and head of the Personal Systems Group, the division that HP briefly considered spinning out last year, made a base salary of $850,000, plus $9.3 million in stock-based compensation. He received $464,457 in incentive pay, plus $105,000 in other compensation, for a total just shy of $10.7 million.

Vyomesh “VJ” Joshi, the executive president and head of the Imaging and Printing Group, got an $850,000 salary, too, and nearly $8 million in stock awards, plus $638,355 in incentive pay, for a total of $9.8 million.

Shane Robison, the former chief strategy officer who retired last year, received a base salary of $781,250, plus stock awards worth $7.6 million and $606,506 in incentive pay, for a total of $9 million.

Finally, we have a full accounting of what former CEO Léo Apotheker made for his 11 months of service at HP’s helm. The full amount was $30.4 million. The precise amount had been the subject of some guesswork based on less-than-complete HP filings made around the time of Apotheker’s departure. The filings netted for HP a dubious award for “Worst Footnote of the Year” over at Morningstar’s Footnoted blog. My best guess had been in the $28 million to $33 million range.

Apotheker’s compensation breaks down like so:

$1,152,770 in base salary.
A $6.4 million bonus, of which $4 million was a signing bonus when he joined HP, and $2.4 million paid under the terms of his separation agreement.
Stock awards worth $17,660,759.
$5.2 million in “other compensation.” Within that was $2.9 million in relocation expenses related to Apotheker’s move from France to California and back; $1.7 million in “miscellaneous,” the majority of which, as explained in a footnote, was a “reimbursement for foregone non-competition payments that would have otherwise been payable by his former employer,” which refers to the software company SAP, where Apotheker was co-CEO.
Another $25,000 representing his personal use of HP aircraft.

Filing: Without Itanium Chip, HP Is "Strategically Screwed"

Arik Hesseldahl — Tue, 31 Jan 2012 15:00:45 +0000

Last night, a California judge made some key rulings in the ongoing litigation between Hewlett-Packard and Oracle over the latter’s decision to stop supporting Intel’s Itanium chip.

One thing Judge James Kleinberg did was dismiss a fraud claim by Oracle that said HP had been all sneaky when it concluded a settlement with Oracle that included an agreement to continue building software for systems using the Itanium chip. The settlement was struck only a few weeks before HP hired Léo Apotheker as its CEO and Ray Lane as its chairman.

But that’s not the important part of what Judge Kleinberg did. The most important aspect of yesterday’s action in Hewlett-Packard v. Oracle was the release of the unredacted version of Oracle’s cross-complaint. And it’s a juicy read.

I’ve posted the redacted version before. Now you can read all the bits that were blacked out.

What you’ll find is a lot of information that goes to the core of Oracle’s argument that HP has a lot to lose if the Itanium chip goes end of life, which is exactly what Oracle has said Intel plans to do. As the only major server vendor who sells boxes running Itanium chips, HP makes a lot of money — billions of dollars, according to a newly unredacted statement in the filing — on service-and-support contracts with its Itanium customers. As one HP executive is quoted on page four of the filing, without Itanium, HP would be “strategically screwed.”

Intel, on the other hand, was more or less ready to let the chip die. Having spent billions, dating back to 1989, to develop the Itanium chip, which outside of HP never saw any market success, Intel had to be convinced to keep building them. To do that, HP, the filing reads, paid Intel $440 million to keep Itanium chips in production for a few more generations, through 2014. The deal didn’t even cover the cost of the chips, as HP had to pay for them, as well, the filing reads. Oracle calls the arrangement a “pure pay-off to induce Intel to keep churning out processors that it really wanted to kill.”

And while there’s nothing specifically wrong with the arrangement by itself, Oracle’s point is that HP was misleading the marketplace about the true status of the keystone product in its Business Critical Service business. That unit, in no small part because of the uncertainty wrought by this lawsuit, saw its sales fall by 23 percent in HP’s most recent quarter.

Having won the release of the unredacted complaint, Oracle claimed something of a victory in a statement:

“Oracle is delighted that the Superior Court of the State of California, Santa Clara County, has rejected HP’s attempt to hide the truth about Itanium’s certain end of life from its customers, partners and own employees. We look forward to seeing all of the facts made public that demonstrate how HP has known for years that Itanium is end of life.”

It all sounds very reasonable, until you take into account the fact that Oracle acquired Sun Microsystems in 2010 and is now a big server vendor that competes with HP, and would by no real stretch of argument benefit from an exodus of HP’s Itanium customers toward other vendors. HP called the decision by Oracle to cease support for Itanium part of a “calculated business strategy” to mess up HP’s Itanium business and capture those customers. Yet the evidence so far suggests that the one benefiting from this fight is actually IBM.

HP claimed victory of its own, in a statement:

“HP is pleased that the Superior Court of the State of California, Santa Clara County, has rejected Oracle’s attempt to use a fraud claim to undo its contract with HP. We look forward to seeing the facts made public that demonstrate how Oracle’s March 2011 announcement to no longer develop software for Itanium servers was part of a calculated business strategy to drive hardware sales from Itanium to inferior Sun servers. This further demonstrates the fact that Oracle breached its contractual commitment to HP and ignored its repeated promises of support to our shared customers.”

HP has portrayed itself as the defender of the interests of Itanium customers, under attack by Oracle. As HP puts it in its statement, Oracle tried to induce customers running Oracle software on HP Itanium systems into replacing that hardware by limiting support and withholding software patches and bug fixes. “Customers were left without options to address bugs and other defects in their Oracle software,” HP says.

For HP, this is all a simple argument over whether or not Oracle can be held to the contract they agreed to in 2010.

The agreement stems from the circumstances of former HP CEO Mark Hurd’s resignation, and his subsequent hiring by Oracle as its president. HP sued Hurd and Oracle, and soon they settled. HP says that a clause in that settlement included a provision that Oracle would continue to port its database software to HP servers running the Itanium chip. Oracle has argued that this clause is not part of the final agreement. The settlement document itself remains confidential, but its details will likely emerge in the trial. Expect lots of arguing over different versions of the agreement.

I have embedded two documents below, for your reading pleasure. The first is Oracle’s unredacted cross-complaint, with all the blacked-out bits from the previous version now fully revealed for the world to see. Below that is a Case Management Conference Statement filed by HP lawyers, also unredacted, where it seeks to expose Oracle as making cold-blooded moves that would appear to be attempts to spur Oracle’s own software customers to abandon HP hardware. It’s not quite as juicy as Oracle’s document, but it has its moments, too. Enjoy them both:

HP v Oracle – Amended Cross Complaint

0077a 2011121 Hp Cmc Stmnt Unredacted

Add Another Log to the Fire: HP Employees Grumble About Loss of Stock Grants

Arik Hesseldahl — Tue, 24 Jan 2012 13:00:06 +0000

Given the events of the past 18 months or so — two new CEOs, a brief flirtation with a significant spinoff, the failure and then marginalization of an important consumer product and an unpopular and expensive acquisition — it’s probably no surprise that morale among employees at Hewlett-Packard has dropped significantly in recent months.

But now, many employees in HP’s mid-tier management ranks have something new to grumble about. Some 700 to 900 HP employees who have been participants in a three-year-old HP stock bonus plan learned right before the holidays that they would not be receiving the payout of shares they expected.

The program concerns what HP refers to as PRUs, or Performance-based Restricted Units, and is described in detail in HP’s 10-K and proxy filings with the Securities and Exchange Commission. It was created both as a performance-based bonus and also as a retention plan for certain HP management-level employees at the vice president level and higher.

In a Dec. 12 internal HP email obtained by AllThingsD, employees participating in the program were told that they wouldn’t be receiving a payout for 2011, and that shares accrued during HP’s fiscal years 2010 and 2009 would also be lost.

To explain:

Under the terms of the program, employees received grants representing hypothetical shares of HP stock that were to have been paid out at the end of the three-year period ending Oct. 31, 2011. Had HP met the stated cash flow and shareholder return goals, the shares would have been paid out to employees sometime in December.

Instead, employees were told that they would receive no payout from the PRU program at all, not for 2011, nor for 2010 or 2009.

This is, of course, exactly how the PRU program was to work: With HP’s goals not met, there was no payout to give. And while other equity-based bonuses and grant programs remain in force, for employees in the mid-level ranks — not those in the senior ranks already earning half-million-dollar salaries or more — PRUs represented an important benefit.

It’s not clear exactly how much HP would have been required to pay had the company met the PRU program’s requirements. The company’s most recent 10-K filing said that it had “$82 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value,” but now that the payout has been canceled entirely, it no longer has to account for that amount, nor for any previous year’s PRUs.

Whatever the total amount involved, affected employees who stood to receive PRUs are seething about how and when they were told they wouldn’t be receiving them.

The email, delivered to certain managers on Dec. 12, contained instructions on talking with subordinates about their annual performance review and the rewards they could expect. The subject line was: “Deliver the One conversation.”

It reads, in part:

Managers with FY09 Performance-based Restrictued Unit (PRU) Award Holders

We have the final performance results for the FY09 Performance-based Restricted Unit award, which was based on HP’s performance from FY09-FY11. As you will recall, the performance metrics for the FY09 PRUs were:

1. HP’s annual cash flow from operations as a percentage of revenue for each of FY09, FY10 and FY11, and

2. HP’s Total Shareholder Return (TSR) for the FY09-FY11 period relative to the S&P 500

As a result of the change in HP’s stock price over the three-year period, the TSR requirements were not achieved, and no shares will be released from the FY09 PRU award.

Of course, we are very disappointed that there is no payout this year from this program, and you have specific management actions to communicate the final disposition of this grant for FY09 PRU award holders. The actions are:

– During the One Conversation, you will also need to address the outcome of the FY09-11 PRUs with employees on your team who are FY09 PRU Award Holders

– Please review the FY09 PRU Talking Points and PRU FAQs [Here the email contains links to internal HP documents I have not seen. -Ed] to prepare to have this discussion with your affected employees, who are listed below: [Here the printed copy of the email I received has several listed names blacked out.]

For any other questions about FPR, please ask Contact HR.

Regards,
Evan Wittenberg, VP, Global Talent

Stan Dunlap, VP, Global Rewards

And here’s some more detail about how the PRU program worked, taken from HP’s 10-K and proxy filings:

HP employees who participated in the PRU plan could track the accrued amounts of their PRUs on a Merrill Lynch Web site. I talked to two sources, both of whom had accrued PRUs worth between $100,000 and $200,000 for fiscal 2009 and 2010. Other less senior employees who received PRUs would have accrued between $20,000 and $50,000 in their accounts.

One source told me that as rumors began to circulate that PRUs would not be paid for 2011, most people assumed that the accrued amounts for 2009 and 2010 would still be paid. How wrong that assumption was became apparent on Monday, Dec. 11, as the amounts in their Merrill Lynch PRU accounts plummeted to zero. As recently as Dec. 9, the prior Friday, the value of the accrued PRUs for 2009 and 2010 were still displayed.

HP CEO Meg Whitman discussed the decision not to pay out PRUs in a conference call with HP’s top 900 executives days later. According to people who were on the conference call, Whitman primarily blamed the economy.

Despite the fact that HP followed the PRU program’s provisions correctly, affected employees are grumbling that management has “crossed a line.” As one source put it to me, revealing the decision during the weeks leading up to Christmas was “unconscionable.”

“If they will cross this line now, there’s no line they won’t cross later,” said one source, a current HP employee who asked not to be named. “They could have played straight with us and told us this was coming months ago. The way they’ve done this is not in keeping with the HP way.”

The decision is hurting morale at a time when HP needs to hold on to its people. One source, who left HP recently for another company, says he is routinely being peppered with resumes from HP employees looking to jump ship.

Update: An HP spokesman says of the PRU program that compensation is tied to performance and the 2011 fiscal year wasn’t a good one for HP. Still other bonus programs did pay out. “High-performing employees were still eligible for salary, stock and bonus awards that year.”

As to the timing of the decision, he said since HP’s fiscal year ends on Oct. 31, it’s natural that compensation decisions fall in December. “That’s the time every year that we do raises and award bonuses. That is when these things are announced.”

Of course, many of the affected employees are blaming HP’s prior generation of management for not meeting results, as well as its board of directors. HP shares fell considerably during the 11-month period that Léo Apotheker was CEO, and it was on his watch that the company shook the confidence of investors, as it missed quarterly earnings targets three times in a row.

This probably won’t make them feel any better, but Apotheker is affected by the loss of PRUs, too: Under terms of his separation agreement, Apotheker was to have received 424,000 PRUs which on paper would be worth $12 million and change, given Monday’s share price. But according to his contract on file with the SEC, his PRU grants were made under the same rules as those made to other employees. That means they’re gone, just like those of other affected HP employees.

What Have We Learned From the Mark Hurd Letter?

Arik Hesseldahl — Tue, 03 Jan 2012 00:11:33 +0000

It’s been a few days since the world devoured and digested the contents of the June 2010 letter to then-Hewlett-Packard CEO Mark Hurd, alleging a pattern of sexual harassment of a marketing contractor during a period running from 2007 to 2009.

The facts are pretty simple: HP investigated, found that its sexual harassment policies hadn’t been violated, but in the process found irregularities with expense reports that made HP’s board of directors lose their trust in Hurd. He resigned on August 6, 2010, following a settlement with the contractor, Jodie Fisher, who wrote a letter saying there were unspecified “inaccuracies” in the original letter.

So what have we learned from this visit back to the summer of 2010? And, are there any larger implications for Hurd or for his current employer, Oracle? Or, moreover, for the world at large?

The short answer to the second question is, of course, no. Immediately in the wake of Hurd’s departure from HP, Oracle CEO Larry Ellison rushed to Hurd’s defense, then offered him a job. There’s no indication that any of the new revelations have tarnished Hurd’s standing with Ellison or within Oracle.

So long as Ellison is happy with Hurd as Oracle’s co-president, Hurd is secure. The way Ellison appears to see it, HP was dumb to let Hurd go over what was ultimately a problem with expense reports. Hurd is human, but on game day he plays to win, so Ellison made space for him on team Oracle. The day Hurd doesn’t play to win is another matter.

HP investors can now evaluate and debate whether that company’s board of directors overreacted to the matter, although in reality it doesn’t matter. What’s done is done, and HP’s new CEO, Meg Whitman, has plenty on her plate for the year ahead, not the least of which is undoing some of the damage to its share price done under Hurd’s replacement, Léo Apotheker.

What else have we learned? Hurd’s not the first, nor sadly the last, senior executive to be accused of sexual harassment. For every letter like this one that sees the light of day, there are thousands more that the public never reads.

The U.S. Equal Employment Opportunity Commission has tracked the number of sexual harassment claims it investigates each year since 1997, when there were 15,889 cases. It is perhaps encouraging to learn that the number of such cases investigated by the EEOC has dropped by 26 percent to 11,717 as of 2010. (And here’s an interesting fact — 16 percent of these claims were from males.)

On average, these investigations lead to about $50 million each year in monetary benefits paid to the people who file claims, and these don’t include cases that go to court.

And the fact remains that HP’s own internal investigation exonerated Hurd of sexual harassment, and Fisher has stipulated that there were “inaccuracies” in the original letter.

Still, none of it has to be true for the contents of the letter to be a perfect case study in what not to do. As such, it should be required reading for executives at every level of seniority. In that sense, painful and tawdry as it must have been for those concerned, the letter’s release constitutes a public service.

(And speaking of public service, the image above is the early 1990s-vintage graphic from NBC’s public service announcement campaign.)

HP to Limit Severance Payouts for Ousted Executives

Joann S. Lublin and Ben Worthen — Fri, 16 Dec 2011 00:27:44 +0000

Hewlett-Packard Co., still smarting from criticism over the exit packages it awarded to ousted chief executives Mark Hurd and Leo Apotheker, will limit severance payments it makes to senior executives who are pushed out.

The revised severance policy, disclosed in the technology giant’s annual report filed Wednesday with the Securities and Exchange Commission, means any executive officer terminated without cause will have to leave behind restricted shares or options that aren’t vested at the time they leave the company.

Read the rest of this post on the original site »

Three Months After Bartz's Firing, It's Hurry Up and Wait at Yahoo (A Big Honking Update)

Kara Swisher — Wed, 07 Dec 2011 17:43:12 +0000

“Let’s go. Yes, let’s go.” [They do not move.]

– Samuel Beckett, “Waiting for Godot”

In Internet terms, the removal of Yahoo CEO Carol Bartz happened a dog’s age ago.

In fact, it was September 6.

Since then, it has felt like a slow slog, especially contrasting the situation with that of another troubled Silicon Valley giant, Hewlett-Packard, which fired its CEO Léo Apotheker and appointed a new one, Meg Whitman on September 22.

Since then, in comparison, the former eBay CEO has been like the Energizer Bunny, making a series of major and often difficult decisions, including: Holding onto its PC unit; reaffirming its controversial deal to buy Autonomy; promising a decision on the fate of its webOS unit within the next two weeks; appointing new execs; and even buying a company.

To be fair, Yahoo did acquire advertising start-up Interclick.

Otherwise, still no sale or investment deal. No new CEO. No Asia resolution. And, perhaps most importantly, no clearly articulated strategy going forward.

It’s not that Yahoo’s leadership isn’t working at it.

Some fervently insist to me that there is a “plan,” as if there is some clever game of Internet Stratego going on that I cannot possibly grok.

Mebbe — but of this I have no doubt: The Yahoo board has indeed been huffing and puffing away, weighing and measuring, considering and debating.

A lot.

Maybe I’m just too impatient. I am (ask my kids).

Or maybe Yahoo’s beleaguered employees are, one of whom just wrote me plaintively, “unreal how they can drag this out,” in what has become a common refrain up and down the ranks.

Or maybe it’s the Asian partners, Alibaba Group and SoftBank, who are antsy and have considered a variety of nuclear options in order to get back stakes Yahoo holds in them. Said one: “The strategy seems to be to frustrate and exhaust us into submission.”

Or, finally, maybe it’s the newly frustrated recent bidders for a partial stake in Yahoo, Silver Lake and TPG Capital. Declared one to me after I warned that Yahoo might, in fact, drag the proceedings out longer than you might expect: “I thought you were kidding.”

Nope, welcome to the Yahoo waiting game, PE guys!

So, to help us all get through it, here’s a quick update primer on what’s what on the various fronts:

Who’s in Charge Here?

Technically, it is the Yahoo board, which is aided by interim CEO Tim Morse.

First, a word about Morse: By all accounts, he is doing a very good job as temporary head honcho — calming the troubled company, making swift decisions about daily operating issues and being a generally nice dude to deal with.

“He’s Yahoo’s no-drama Obama, in comparison to what was happening before,” said one exec, in reference to the more volatile regime under Bartz.

Still, despite his very pleasant all-hands meetings, such as one earlier this week, Morse had previously been Yahoo’s CFO and not an Internet-savvy visionary to give the company inspiration. No insult intended, but he’s the accountant guy.

To be fair, he is not meant to be the visionary, but many at the company are yearning for exactly that.

A role that is now being taken up again by co-founder, former CEO and director Jerry Yang, who dozens of employees tell me is unusually involved in operational details these days for a board member.

I get reports of sightings of him all the livelong day: Jerry in demand-side advertising confab! Jerry chitchatting with entrepreneurs from a possible start-up acquisition! Jerry weighing in on a variety of products. Look, over in the cubicle, it’s Jerry!

This is seen by Yahoo employees as a good thing and also a bad thing, since it’s hard to be running your little divisional show at Yahoo with the dude who invented it all looking over your shoulder, even if he means well. People naturally defer to Yang, the 800-pound Web icon in the room.

But, given the overwhelming state of stasis at Yahoo now — “No one can do anything until we find out how the story ends,” said one staffer — and employees eying the exits, no power at Yahoo really matters but the board.

You know, the board that has gotten the company to this moment of crisis and profound ennui, which is its own particularly ironic irony.

To better understand the power dynamics on the board, above is a little chart for you to peruse to give you an idea of which independent board member is running what key committee.

The only truly important one is the Transactions and Strategic Planning committee, which is headed by Intuit President and CEO Brad Smith and includes former Akamai President (and former Yahoo CEO candidate) David Kenny, top HP exec Vyomesh Joshi and other guy Gary Wilson.

And, in completely visible shadow form, Yang. Multiple sources close to the situation said he has been a key force in the strategery around a possible sale or investment.

This has caused not more than a little tension among board members, but everyone seems to like the much described nicest-man-in-the-room, Smith, and hopes his cool head will prevail.

Another important part of the board is the Nominating and Corporate Governance committee run by Patti Hart, who is energetically and simultaneously — if pointlessly — in search of a capable new Yahoo CEO.

Or, as I like to call this mythical person: The Unicorn.

The Deal

As I and many others have previously reported, there are bids on the table for partial investments in Yahoo by two very powerful private equity firms, Silver Lake and TPG Capital.

It’s a PE rumble, with a side of Microsoft financial backing! (I think Silver Lake’s Egon Durban makes a very nice Riff, while Microsoft’s Steve Ballmer is the perfect Officer Krupke.)

My fervent wishes for some figurative and dance-accompanied knife-play aside, the bids are essentially the same in general and different in particular. Silver Lake is offering about $16.50 a share, while TPG is dangling a tiny bit more. Silver Lake has power entrepreneur and VC Marc Andreessen on its side, while TPG is trying to get Silicon Valley fave investor and start-up whisperer Reid Hoffman of Greylock Partners and LinkedIn on its team. Both have ideas on CEOs, strategy and what to do about the Asian assets.

This type of deal could happen suddenly and you’ll hear about it quick, since the losing side will immediately trash it to the media.

As you might expect, each director has their favorite PE firm, with some not liking Andreessen, some thinking the TPG bid is a little light, some for a whole-company deal and some wanting Yahoo to hire its own CEO and run the place itself.

Of course, the last one shows a disturbing level of denial and should be a nonstarter, given the board’s abysmal record on CEO choice and its riding of Yahoo to this sad point in its storied history.

Here’s what to expect on the PE front: A lot of wrangling behind the scenes with frequent leaks to the media about what each side wants and will not yield on.

CEO choice or no CEO choice, that is the question!

Also a big factor are Yahoo’s major shareholders, few of whom like the partial investment deal, which is known as a PIPE (Private Investment in Public Equity), because of the insiderness of it all and because they prefer a whole-company sale at a higher price.

There is also pressure from activist shareholders like Daniel Loeb of Third Point, who has attacked Yang and others on the board and is ready to pounce with a proxy fight if Yahoo tries to override shareholders too egregiously. And, of course, the inevitable lawsuits over any arrangement that seems to block a whole-company bid.

That said, such a mega-deal seems unlikely, since it is too pricey and despite a lot of noise that Yahoo’s Asian partners were ready to strike with a takeover in order to get back Yahoo’s big stakes in their companies.

That’s kind of like buying a store to get back the cool pair of shoes you sold, but bankers love to scheme up this stuff. While it certainly could happen, it would be a bear of a deal.

Perhaps more like Yogi Bear, hopelessly angling for a tasty pic-a-nik basket — but grrrr anyway.

But perhaps the biggest factor in all of this mishegas is time. There is none on a lot of levels, most especially the increasing level of brain drain and drift at Yahoo. After the New Year dawns, this is going to spin right out of control and amount to the biggest internal challenge Yahoo faces.

An Asian Solution

As I and others have reported, Yahoo is entertaining yet another proposal to sell all or part of its Asian assets back to the companies, which make up a bulk of its market valuation.

The relationship between Yahoo and its Asian partners has long been fraught, and today the difficulty of reaching an agreement remains a vexing issue. That’s because it is hard and complex and because no one wants to do what the other side wants.

I am no tax attorney, but it seems as if Yahoo will ultimately come to some deal with China’s Alibaba and Japan’s SoftBank, which could include big investors like Russia’s DST Global.

And, as I reported last week, the Asian partners want to strike a deal with the current board rather than lose leverage with a much cannier new owner.

It’s a tough decision in all aspects to strike, but would remove the focus on the fact that Yahoo’s most valuable asset is something it is not running and simply holds due to a good stock trade in years past.

Years past should be the operative thought here, since the Asian assets have nothing to do with what Yahoo needs to do with its core U.S. and global brand.

You know, the thing that allowed them to buy those lucrative Asian assets in the first place?

Strategery

And that’s the crux of all this, isn’t it? Yahoo needs a new strategy and fast.

Or it needs to clarify and hone its current strategies around advertising and media and define itself once and for all. While it often touts itself as a premier digital media company, it’s still not clear exactly what Yahoo is saying by that.

In fact, incredibly, sources told me that the board was still wrangling over the tired issue of what Yahoo is at its most recent meeting — essentially, is it a products company or a media company?

If I had to listen to that who-am-I-anyway debate again, I think I would scream, given how many important Web trends that Yahoo has whiffed in recent years, many of which were right in its own wheelhouse.

How much damage this has caused to Yahoo’s core business is a critical one to determine, with many feeling the situation is too far gone to revive it and others confident that this is simply an issue of poor execution.

I am in the middle on this one, but all the indicators of Yahoo’s business have long been heading in the wrong direction, and results in the next quarter are expected to underline this even more.

Thus, the board’s navel-gazing at this point is untoward, considering that it is presiding over the possibility of a sale that should not have had to happen in the first place. While it is not quite a fire sale, it’s no cause for celebration at all the attention, either.

In fact, it’s also pointless, since — if this all resolves as it should — the current Yahoo board will not be the one determining the company’s future any longer. Remember that: This group should and will be gone for the most part.

Yahoo shareholders and employees can hope, at least.

Then, it will be up to the next group of leaders to make the very hard choices — including what are likely to be massive layoffs and radical surgery on its offerings — for what’s to come next.

In the end, that is all that will matter. Until then, as usual, you’ll have to sit tight.

Oracle Accuses HP of "Campaign of Secrecy and Deception" Over Itanium

Arik Hesseldahl — Sat, 03 Dec 2011 02:31:55 +0000

Just as I expected, Oracle filed its amended cross-complaint against Hewlett-Packard in the Itanium lawsuit a little while ago, and aside from all the redacted bits that clearly cover up some juicy reading, it’s still pretty interesting. I’ve embedded the whole 43-page filing below, via Scribd.

Oracle paints a picture of HP desperate to preserve the profits it makes on support and service contracts generated from customers using Integrity servers, cutting arrangements with Intel to keep pumping out Itanium chips that no one but HP buys, and which Intel would secretly like to forget in order to focus on its highly profitable line of mainstream Xeon server chips. Oracle describes an agreement between HP and Intel called the “Itanium Collaboration Agreement” and calls it a “a pure pay-off to induce Intel to keep churning out processors that it really wanted to kill.”

Here are some other interesting highlights. Remember yesterday how I said that the main issue, at least from HP’s perspective in this suit, is whether or not Oracle agreed to continue to port its software to HP-UX so that it could run on HP’s Integrity servers that use Intel’s Itanium chip.

HP has argued that when the two companies settled a lawsuit concerning Oracle’s hiring of former HP CEO Mark Hurd, that Oracle agreed to do just that. Oracle has argued that it agreed to no such thing and so is perfectly within its rights to walk way from the Itanium platform.

Pick up the action on page 27. You read how, as Oracle tells it, HP sought to insert language into that settlement that included an Oracle pledge to stick with Itanium, which Oracle rejected twice.

It quotes an email from Oracle General Counsel Dorian Daley to HP lawyers proposing the following langauge in a draft agreement:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership.

HP, Oracle says, then responded with the following proposed language:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership. Oracle will continue to support all ongoing versions of HP-UX with Oracle’s relevant database, middleware and application products with the availability, marketing and pricing in competitive terms that Oracle has provided HP for the past five years. Oracle will continue to provide access to the Java technology and tools such that HP can continue to support its operating systems (e.g., HP-UX, OpenVMS, Nonstop) in a manner similar to the way it does today. Oracle agrees to continue to provide Solaris for HP’s x86 platforms in a manner similar to what it provides HP today. Oracle agrees to continue to purchase HP server hardware for internal use at a rate similar to what Oracle purchases today.

Oracle rejected it, and by its account, no mention of Itanium or HP-UX was in the final version of the settlement that both signed. The final version was nearly identical to the draft that Daley proposed above. This sequence of events and what the final version of the agreement actually says will be a key issue in the trial. A lot of the rest of the stuff is a bit of Oracle bluster, though it’s interesting bluster.

For instance, Oracle accuses HP of having “fraudulently induced Oracle to enter into the very contract” at the heart of the lawsuit, by negotiating at a time when people on the HP side would have known that the company was about to hire Léo Apotheker and Ray Lane as CEO and chairman. As Oracle puts it:

“Given the well-documented animosity between Oracle and Messrs. Apotheker and Lane, HP knew that had Oracle known of HP’s imminent plans to hire these individuals, Oracle would not have signed the Hurd Agreement, especially any ‘partnership’ commitments or other business restrictions … unrelated to Mr. Hurd’s move to Oracle. … HP had a duty to disclose this exclusively-held material information. Instead, HP knowingly and actively withheld this information.”

HP naturally isn’t taking the latest round of accusations from Oracle silently. The company just issued a statement basically accusing Oracle of trying to distract us all from the fact that it’s in breach of a contract. And the key phrase in the contract — all that back and forth between the Oracle and HP lawyers above — is this one: “An agreement to continue to work together as the companies have,” meaning work together as they did when Oracle still supported Itanium.

This all started back in March when Oracle said it would stop software development for Itanium. It prompted a lot of shocked and angry pronouncements from HP and Intel and counter-claims from Oracle. Itanium customers then rallied to its defense and sought to change Oracle’s mind. It didn’t work. Months passed, and HP resorted to a lawsuit in June that has seen many colorful arguments, and even the odd pop-culture reference.

HP’s press-release rebuttal is below and the full PDF of Oracle’s filing — complete with all the redactions is below that.

PALO ALTO, Calif., Dec. 2, 2011 – HP today issued the following statement in response to Oracle’s amended cross-complaint in the Intel Itanium litigation:

Today’s filing is another example of Oracle attempting to distract from the undeniable fact that it has breached its contractual commitment to HP and ignored its repeated promises of support to our shared customers.

Here are the facts:

— On Sept. 20, 2010, Mark Hurd, Oracle and HP entered into a written settlement agreement. Pursuant to that agreement, HP dismissed its lawsuit against Hurd, and did not further challenge Hurd’s employment at Oracle. In exchange, Oracle contractually committed that it would “continue to offer its product suite on HP platforms … in a manner consistent with [the Oracle-HP] partnership as it existed prior to Oracle’s hiring of Hurd.”

— Oracle confirmed that it was agreeing to continue to port its software products to HP’s platforms in the same manner as it had done prior to its hiring of Hurd. In an email sent to HP on Sept. 12, 2010, Oracle’s general counsel wrote that this provision was “an agreement to continue to work together as the companies have – with Oracle porting products to HP’s platform and HP supporting the ported products and the parties engaging in joint marketing opportunities – for the mutual benefit of customers.”

— Oracle now claims that this provision does not require Oracle to continue to port its database and other software to HP’s platforms. Yet that is exactly what the contract says, and that is exactly what Oracle committed to do in order to convince HP that Oracle’s hiring of Hurd would not alter the relationship between the companies or be used unfairly to undermine HP’s business.

— Oracle initially tried to justify its Itanium decision by falsely ascribing to Intel the position that Itanium is at end of life. Due to Intel’s unequivocal and repeated statements to the marketplace that Itanium is not at an end of life, Oracle has been forced to revise its rationale.

— In its cross-complaint, Oracle tries to rationalize its Itanium decision by arguing that, despite the undisputed existence of committed support for Itanium that stretches to the end of this decade and beyond, Intel would not have made this commitment to Itanium if it were not for a contractual agreement with HP.

— The existence of such a contract completely undermines Oracle’s stated rationale for discontinuing Itanium support by taking the future of Itanium out of the realm of speculation and firmly establishing as a matter of undeniable fact that there is a committed Itanium roadmap that extends out toward the end of this decade. Oracle has the relevant Itanium roadmaps in its possession, yet it continues to refuse to discuss those roadmaps.

— What has become very clear in the course of the litigation is that Oracle’s claim in March 2011 that it was ending support for Itanium because Itanium was at or near an “end of life” was false and a pure pretext to hide Oracle’s real purpose: to take away the choice of Itanium from customers and restrict the competition faced by its Sun servers.

— Indeed, Oracle’s internal documents make clear that its announcement in March 2011 that it would no longer develop or support software for Itanium servers was implemented as part of a business strategy to leverage Oracle’s dominance in database software to try to force Itanium customers to purchase Sun servers. The tactics employed by Oracle in support of this purpose included pricing misconduct, withholding of benchmarking scores for HP servers run on Oracle software, and abusing customers on support issues.

— Oracle is in breach of its contractual commitments to HP, and it has failed to honor its promises to customers. Oracle should be addressing and rectifying this conduct rather than making up claims against HP.

70777_xREDACTEDxxAmendedxCrossxComplaint

For HP, a Simple Argument With Oracle Over Intel's Itanium Chip

Arik Hesseldahl — Thu, 01 Dec 2011 14:23:07 +0000

The legal sparring between Hewlett-Packard and Oracle over Intel’s Itanium chip is likely to get more contentious before the end of the week, as a deadline for a key filing from Oracle comes on Friday.

The expected filing is Oracle’s amended cross-complaint, wherein the company will lay out the basis of its legal argument explaining why its March 23 decision to stop building software that runs on servers using Intel’s Itanium chip was not only justified but doesn’t violate an agreement struck last year between Oracle and HP.

Oracle has made several colorful claims in court. Last month, for example, it compared an arrangement between HP and Intel to continue to produce and evolve the Itanium chip to a remake of the film “Weekend at Bernie’s.” And in August it argued that HP engaged in fraud by not telling Oracle that it was about to hire Léo Apotheker as its CEO and Ray Lane as its chairman when it was negotiating a settlement to a 2010 lawsuit over Oracle’s hiring of former HP CEO Mark Hurd.

But the real issue is a simple one, say people familiar with HP’s thinking in the case. Did Oracle agree to a contract with HP to continue to support Itanium — as it has been doing for years — or not?

The year 2010 was a weird one for executive moves among tech companies. Hurd resigned as CEO of HP, and took a job as president of Oracle just as Oracle was in the process of acquiring Sun Microsystems. HP sued Hurd and Oracle, and soon they settled. HP says that a clause in that settlement included a provision that Oracle would continue to port its database software to HP servers running the Itanium chip. Oracle has argued that this clause is not part of the final agreement. The settlement document itself remains confidential, but its details will likely emerge in the trial. Expect lots of arguing over different versions of the agreement.

One key part of Oracle’s argument has been that HP has been paying Intel to keep the Itanium chip alive in the face of its failure to gain traction in the mainstream server market over the last decade. This is something that HP readily concedes, since it and Intel developed the chip together in the early 1990s, and regularly renew their agreements — in 2004, 2007 and again in 2010 — to commit resources to build it and to design new generations of the chip every few years. The latest agreement calls for Intel to build two new generations of the chip.

Another argument Oracle has made concerns HP’s management during the last year. When the 2010 agreement ending the Hurd lawsuit was struck, HP was nearing the end of its search to replace Hurd. CFO Cathie Lesjak was interim CEO at the time. Ten days later, HP announced that Apotheker would become CEO. In a filing in August, Oracle argued that it never would have agreed to the Itanium partnership had it known that Apotheker, a onetime co-CEO of SAP and a figure in a contentious Oracle-SAP lawsuit, was about to become HP’s CEO. Ditto Ray Lane, a former Oracle president who was named HP’s chairman earlier this year.

People familiar with the case say that Oracle seemed unconcerned about HP’s ongoing search for a CEO, and didn’t raise any questions about it during settlement negotiations for the Hurd case. These people say that HP wasn’t deceptive, but that even if it had been it will be difficult for Oracle to argue that it’s not bound by the terms of the settlement. The language is clear and unambiguous enough that Oracle would have to argue that the Itanium clause in the agreement means nothing, these people say.

One thing is certain: The damage that HP is suffering from the ongoing uncertainty in the marketplace over its Itanium-based servers is starting to sting. HP calls these machines its “business critical” servers, and they are industrial-strength computers that aren’t sold in large numbers. Indeed, HP is the only vendor of note that even buys the Itanium chip.

But it’s a historically profitable business — HP won’t say exactly how profitable — on which HP charges its customers large service and support fees. In 2010, HP reported revenue of $2.3 billion from its business-critical operation, amounting to less than 2 percent of its $126 billion in sales that year. In 2011, HP reported that sales in its business-critical unit dropped 23 percent in the fourth quarter over the same period a year ago; sales for the year fell to just above $2 billion.

HP has argued that Oracle’s motivation is to steer HP customers toward its Sun hardware. If that was the strategy, sources briefed on the case say, it isn’t quite working out that way. One lucky party benefiting from the fight, they say, is IBM, who is winning business from some former HP customers. It’s one reason that HP is arguing for a speedy trial.

HP's Look Ahead to 2012 Must Be Not Too Hot, Not Too Cold, but "Just Right"

Arik Hesseldahl — Mon, 21 Nov 2011 13:55:05 +0000

Hewlett-Packard will today report results for its fourth fiscal quarter and its 2011 fiscal year. It will be the company’s first earnings announcement under its new CEO Meg Whitman, who stepped in as CEO two months ago.

It will also be the first earnings release since the infamous fiasco of Aug. 18, when HP shocked investors with a truckload of news: The shutdown of the webOS hardware business, the now-concluded review of strategic options for the PC business, the acquisition of the British software firm Autonomy and a lowering of its revenue outlook.

The consensus of Wall Street analysts calls for HP to report sales of $32.1 billion and per-share profits of $1.16. At that level, sales growth would amount to about 3 to 4 percent on a sequential basis. Which, writes analyst Toni Sacconaghi of Bernstein Research in a note to clients on Friday, is substantially slower than the 8 to 14 percent HP usually grows sales in its fourth quarter.

HP consistently beats the consensus number — 25 of the last 26 quarters, by Sacconaghi’s count — so there’s a pretty good chance the company will do it again, despite an aggressive pricing environment for PCs, economic weaknesses in Europe and headwinds from the effect of currencies. When HP issued profit guidance in August for this quarter — the range was $1.12 to $1.16 a share — it implied that operating margins would be down by about 0.3 percent to up by 0.1 percent. This would be, Sacconaghi writes, the worst quarter-on-quarter change in operating margin since HP acquired Compaq in 2002.

Yet the results for the quarter are almost of secondary concern. All eyes will be on guidance that HP gives for 2012. It must be realistic, but not too low; achievable, so not too high. Guidance that Goldilocks could love — just right. HP has been lowering its guidance all year, but that was under prior CEO Léo Apotheker. The right number for EPS guidance in 2012, Sacconaghi says, is at least $4.25 a share, though he’s estimating HP will finish 2012 at $4.80, which is a reduction from his previous estimate of $5.15.

Also, it should set some clear priorities for capital allocation, Sacconaghi writes. HP took a lot of heat for paying $11.7 billion for Autonomy. Whitman has yet to set the table strategically for HP: Does it need more “transformation”? Or is it a mature company with slow predictable growth targets that routinely gives cash back to shareholders in much the same way IBM does? In choosing the latter, Sacconaghi says, HP could grow sales by at least 2.5 percent a year and per-share profits by 9 to 10 percent a year for the next three to five years.

HP can expect to produce free cash flow next year, in the range of $8 billion to $10 billion. If it were to buy back $4 billion worth of stock, it would reduce the share count by about 7 percent, and thus goose its EPS accordingly. One important signal on this front is the addition of activist investor Ralph Whitworth to HP’s board. Whitworth is likely to advocate the return of cash to shareholders and lean against big acquisitions.

Finally, there are lots of challenges in HP’s individual business units, none of them insurmountable. The printer unit is still recovering from the effects of the earthquake in Japan. Certain high-demand models are running short, yet there’s a lot of lower-demand models in inventory. Sacconaghi expects sales in the unit to drop 6 percent. In services, HP has had some problems delivering profit growth. Expect some explanation around that in the commentary today. In the PC business, expect some explanation of the effects HP is seeing from the flooding in Thailand which is causing a worldwide shortage of hard drives. In the Business Critical Server business, which is where HP sells its high-margin Itanium-based servers, the impact from the ongoing brawl with Oracle is making it difficult to close deals, Sacconaghi writes.

Overall, he insists that HP — despite its troubles over the last year — remains an attractive investment for patient investors. It still leads the market segments it participates in, except services, and still has fair room for growth. Sacconaghi rates HP as “outperform,” and expects it to hit a price of $37.

HP's TouchPad: The Tablet That Refused to Die

Arik Hesseldahl — Mon, 31 Oct 2011 12:45:16 +0000

Hewlett-Packard’s TouchPad is back for sale at Best Buy.

Unceremoniously killed under HP’s prior CEO on Aug. 18 after disappointing sales, the device quickly found a market after retailers and HP itself slashed the prices on remaining stock.

This time, according to a Best Buy press release, a 32 gigabyte TouchPad is going for $149, with the purchase of an HP- or Compaq-branded notebook or desktop PC. Sold separately, the price jumps to $599.99.

HP, for its part, has sold out of its internal stock of the device, according to a statement on the company’s Web site. TouchPads can, however, still be found on Amazon and on eBay.

By bundling the TouchPad with PCs at its biggest retail partner, HP is giving itself an arguable edge against Acer, Dell and Toshiba in what is sure to be a cutthroat holiday season for PC and tablet sales. After about a month on the market, and before the product wound up on the chopping block, Best Buy sold less than 10 percent of the 270,000 TouchPads it had in inventory.

It’s hard to know how long the deal can last. Sources familiar with HP’s build plans say the initial TouchPad order was for between 1.8 million and two million units, though a third source disputed that number without elaborating. Regardless of the number ordered, sources familiar with the deal say that HP’s decision to kill the product had no immediate effect on the build plans, as components had already been purchased and manufacturing was under way. A source familiar with the matter says the manufacturer is Taiwan-based Inventec, not Compal, as has been previously reported. HP was contractually obligated to take delivery on the remaining units in the pipeline.

That means the TouchPad is now officially a loss leader. As an IHS iSuppli teardown analysis in August showed, HP’s cost to build a 32GB TouchPad is $328.65. At $149.99, HP takes a paper loss of more than $178 per unit.

HP isn’t exactly crying over the lost money. Remember that as part of the hot mess of news it announced on Aug. 18, the company included plans for a $1 billion charge to account for costs related to shutting down the TouchPad and webOS hardware business.

Whatever happens, this is probably the last hurrah for the TouchPad — for real this time. That is, unless no one takes advantage of the offer to buy one along with a PC. Any stock left over after the holiday season rush will probably wind up in Best Buy’s equivalent of the bargain bin.

Spinning Off HP's PC Business Could Have Worked … Couldn't It?

John Paczkowski — Mon, 31 Oct 2011 10:58:44 +0000

Newly appointed Hewlett-Packard CEO Meg Whitman says that spinning off the company’s PC division — as her predecessor, Léo Apotheker, had planned — was a nonsensical proposition, and that keeping it “is right for customers and partners, right for shareholders, and right for employees.”

And that may someday prove to be true. Which is not to say that there wasn’t a compelling rationale for dumping it. IBM jettisoned its PC business and never looked back. HP might have done the same.

While profitable, revenues at HP’s PC unit had been declining recently. Spinning it out might have improved the company’s overall profit margins, even if it did reduce its revenue by roughly a third.

As Bernstein Research analyst Toni Sacconaghi observes, by hiving off its PC arm, HP might actually have created some value.

If it had gotten its act together first.

“While we do believe that retaining the PC business was the right financial decision, we also understand why some investors may have wanted a spinout, as a re-rating of HP’s multiple on its remaining enterprise business could have been potentially highly value creating,” Sacconaghi said. “That said, we ultimately believe that HP should have looked to fix its prevailing operational issues first, and only afterwards potentially considered a spinout of PCs (or printers) if the company felt that it was not receiving an appropriate multiple.”

And fixing those “prevailing operational issues” — and overcoming the ataxia from which it has suffered during the past few months — is exactly what the company must do now.

Only then can it begin growing its PC business and figure out what to do with webOS, whether that means giving it another chance or squeezing some value out of it by selling it to a leading mobile-device maker — assuming it can find one that’s interested.

Hewlett-Packard's PC Market Share Grows, Raising Questions About Those Spinoff Plans

Arik Hesseldahl — Thu, 13 Oct 2011 13:30:18 +0000

Having announced to the world over the summer that it intends to get out of the PC business by spinning off its personal systems group into a separate company, you might have expected the resulting uncertainty to have hurt Hewlett-Packard’s standing in the marketplace.

Not so: The latest data from research houses Gartner and IDC shows that HP, already the biggest PC maker in the world, managed to grow its share of the market in the most recent quarter, and actually grew faster than the rest of the industry as a whole.

According to Gartner, HP’s share edged up to 17.7 percent in the third quarter from 17.4 percent in the year-ago period, and it sold 16.2 million PCs. By IDC’s reckoning, (Gartner and IDC conduct their counts a little differently) HP commanded an 18.1 percent share of the market, up from 17.8 percent a year ago, and shipped 16.6 million PCs.

The data, along with retail PC sales as tracked by the research firm NPD, is widely watched in the PC industry and, if nothing else, gives some indication as to the reasoning behind the trial balloon story in yesterday’s Wall Street Journal, which said that HP is rethinking its spinoff plans.

Meanwhile, Dell saw its share fall on both lists, and its position fell to third place behind China’s Lenovo, with Acer coming in fourth on a global basis. Apple maintained its third-place position in the U.S. market and grew its share to nearly 13 percent in the Gartner rankings and north of 11 percent on the IDC list.

For HP, a world-dominating market share is certainly nice to have, but meaningless if it’s not profitable — which it is. In fact, despite declining revenues — sales in HP’s personal systems group fell by about $1 billion in the first nine months of fiscal 2011, to $29.5 billion — the company managed to boost its operating margins from 4.8 percent in 2010 to 6 percent so far this year.

We know most of the reasons for the decline. Apple’s iPad has tamped down demand for conventional notebooks, and HP, having sought to create a competitive response with its TouchPad, didn’t have much luck. The impact is especially pronounced in HP’s notebook sales, which is where most of the billion-dollar drop in sales in the PC division were seen during the first nine months of the year. The results were offset, oddly enough, by a $366 million increase in sales of high-end professional workstation computers.

Still, having a big PC business gives a company like HP the leverage it needs to buy parts from suppliers for its more profitable businesses. In HP’s enterprise storage and networking group, operating margins were about 14 percent in the first nine months of the fiscal year, where sales grew by more than $2 billion.

It is easier to negotiate favorable prices from chip and memory suppliers like Intel, Advanced Micro Devices and Micron — and hard drive suppliers like Seagate and Western Digital — when you’re still the world’s biggest consumer of their products. Absent the PC division, HP’s orders from those suppliers would be smaller and incrementally more expensive, as discounts are often negotiated based on the volume of components ordered.

The enterprise business was to be HP’s future under former CEO Léo Apotheker, and there is little question that its emphasis won’t continue to be on the enterprise going forward. But as HP’s new CEO Meg Whitman, chairman Ray Lane and the rest of HP’s management team contemplate the decision to spin off PCs or not, the evidence is mounting that the two faces of HP are inextricably linked.

Oracle's Larry Ellison, HP's Ray Lane and the Art of the Dart (Video)

Arik Hesseldahl — Wed, 12 Oct 2011 23:16:25 +0000

Software giant Oracle had a thoroughly uneventful shareholders meeting today. So CEO Larry Ellison, given the occasion of a question from a shareholder, decided to end it on a feisty note, doing what he loves doing: Publicly slamming Hewlett-Packard.

Asked about the ceaseless speculation that Oracle might take advantage of HP’s current weakened state and make what would be its biggest acquisition ever — an ill-advised one, if you really think about it — Ellison didn’t give a definitive yes or no answer, but took a shot at HP chairman Ray Lane, which you can see in the 80-second video clip below. (You can see the full video of the meeting here, but only if you need some help getting to sleep.)

There is, of course, no love lost between Ellison and HP’s newly elected executive chairman. Lane is a onetime Oracle president and COO pushed out by Ellison in 2000, and his election as chairman of HP’s board last year had been, in Ellison’s eyes, apparently overshadowed only by Léo Apotheker’s selection as HP’s CEO. Now that Apotheker is gone, Lane will likely remain Ellison’s favorite punching bag, with Salesforce.com CEO Marc Benioff running a close second.

Anyhow, the shareholder’s question suggests that the “Oracle in hostile bid for HP” chatter hasn’t died yet, no matter how many ways analysts and others can dismiss it as nonsense. As you can see from Ellison’s initial reaction to the question today, he is, if nothing else, entertained by the speculation.

Update, Oct. 13: HP has just sent a statement from Lane: “I’m focused on HP, not on statements like this.”

What's Behind the Marc Benioff-Larry Ellison Feud?

Arik Hesseldahl — Wed, 05 Oct 2011 18:54:44 +0000

Clearly the relationship between Oracle CEO Larry Ellison and Salesforce.com CEO Marc Benioff is a complicated one. Benioff, it appears, has something to prove against his onetime boss and founding investor, and Ellison is having none of it.

How else to explain the weird kerfuffle that exploded like a firecracker last night at Oracle’s OpenWorld conference in San Francisco? Benioff has delivered keynotes at OpenWorld before, in 2009 and 2010 and probably earlier than that, though I didn’t conduct an exhaustive search.

As we all know, Ellison ordered Benioff yanked from the OpenWorld speaker’s roster yesterday. Officially, his talk was moved from 10:30 am today to 8:30 am Thursday, the final day of the conference, when no one but the stragglers are likely to be in attendance.

“At 3:30 today [Tuesday] we were notified we were cancelled,” Benioff told me by email last night. “Then we were told we were moved to Thursday morning when there are no other presentations. We view this as a cancellation.”

His response was to schedule a speech at an alternative venue, the Ame restaurant inside San Francisco’s St. Regis hotel, for the same time slot. (See the press release here.)

So what’s the wrangle really about? On the surface, it’s a difference of vision, a geeky technical debate. What exactly is cloud computing? To Benioff, the cloud is something that can’t be delivered to the customer on a forklift because it’s a service delivered via the pipes of the Internet. Everything that makes it go lives in one or more remote data centers that the customer never touches and rarely, if ever, thinks about. Just like Salesforce.com, where the customer needs nothing more than a browser running on an Internet-connected computer or iPad or smartphone to get started. Or Amazon Web Services. Or Google Apps. Customers pay for what they use, have nothing to manage, install, maintain or upgrade, and stop using it when they no longer need it. Easy, economical, cheap and accessible to everyone.

To Ellison, the cloud can be a hybrid. Certain customers — like the many large companies that are Oracle’s stock in trade — fundamentally distrust the notion of handing their data off to a third party. They run software applications on hardware that’s installed on their own property, or in combination with hardware that Oracle runs for them. On this side of the debate you’ll find not only Oracle, but also other companies with established IT hardware businesses, IBM and Hewlett-Packard among them. Expensive and time-consuming it may be, but real companies doing real things traditionally own their own assets, the argument goes.

As Benioff tells it, this is the “false cloud.” He’s been using that phrase incessantly for some time, and he seems in recent weeks to have deliberately stoked the controversy. At a follow-up panel to his OpenWorld keynote in 2010, he was more direct. Hardware of the type that Oracle sells can be eliminated entirely in the age of the cloud. Fighting word for Oracle, especially when uttered in front of Oracle customers.

And Benioff isn’t the only one throwing punches. In 2009, Ellison described Salesforce as an “itty bitty application” that happens to run on Oracle databases.

But as is always the case with public grudges, it’s more complicated than it seems. There is a personal element to it all. Before starting Salesforce in 1999, Benioff was Oracle’s star employee. He spent 13 years at Oracle. At 23 he was named the company’s Rookie of the Year, and at 26 was the youngest person promoted into the VP ranks. He was in many ways Ellison’s star student. Charles Babcock, writing in Information Week, remembers an Oracle event where Ellison tapped Benioff to address a customer question, and he commanded the stage in a manner one could describe as Ellison-esque.

When Benioff left to start Salesforce, Ellison was an early investor and sat on the Salesforce board until a falling out — spurred largely by Ellison’s backing of Netsuite, another cloud outfit started by two other Oracle alums, Evan Goldberg and Zach Nelson, whose offerings overlap competitively with those of Salesforce.

Obviously Benioff learned well from the master. A classic tactic from the Ellison business playbook is to prod or cajole your quarry into a public PR fight. Look at all the times where Ellison has been brazenly outspoken: Defending, then hiring Mark Hurd after his sudden resignation from HP last year; publicly chasing Hurd’s replacement Léo Apotheker out of his office on his first official day on the job by attempting to serve him with a subpoena; squabbling with Autonomy CEO Mike Lynch.

So who won this round? The conventional wisdom has to give this one to Benioff. With the cancellation of his speaking gig, he’s attracted more attention than he would have otherwise saying whatever he wanted from Oracle’s stage, a fact about which Benioff crowed to the New York Times last night, calling it the “best possible outcome.” It does look like Benioff planned for this result.

However, this long-simmering feud, now that it has boiled over so publicly, is far from over.

Britain's First Software Billionaire Now Reports to HP CEO Meg Whitman

Arik Hesseldahl — Mon, 03 Oct 2011 21:58:17 +0000

Hewlett-Packard just announced that it had closed its acquisition of the British software firm Autonomy. This is the company that HP decided to acquire under previous CEO Léo Apotheker on Aug. 18 for $11.7 billion, the same day it said it planned to spin off its PC division and shut down its webOS business unit.

Rather than become an HP executive, Autonomy CEO Mike Lynch, who’s been described as Britain’s first software billionaire, will remain head of Autonomy, which HP will operate as a wholly owned subsidiary, though he will report to Whitman.

Of course, the deal didn’t get done without some drama — what does get done at HP without drama these days? First there was the shock at the price paid, which represented a 64 percent premium over Autonomy’s share price. It was just one of the things that led to a shareholder lawsuit against HP.

There were certainly enough questions about the deal to cause some speculation around the notion that HP might try to back out of it. Those ideas gained some currency when HP’s board of directors fired former CEO Léo Apotheker, but not before giving him a pricey exit package.

Then there was the Oracle shopping scandal. Asked about Oracle’s position in the unstructured data market two weeks ago, CEO Larry Ellison said that his company had passed on a chance to acquire Autonomy because the price was too high. Lynch, apparently falling into a PR trap laid by Oracle, took issue with Ellison, saying Autonomy had never been shopped to Oracle, prompting Oracle to publicly call Lynch a liar, then produce a set of PowerPoint slides as evidence. Lynch then went on to blame his eager banker, Frank Quattrone. Of course, it was widely known that Autonomy had been quietly shopped around for months.

So that little kerfuffle is over, now that HP is in control and its corporate communications team, led by Lynn Anderson, is in charge.

Meanwhile, there’s the larger mission to worry about: HP has to prove that Autonomy was worth all that money, and there’s an awful lot at stake. HP shares are still trading near their lowest levels in six years, and closed today at $22.20, down 25 cents. According to the disputed slides prepared by Qatalyst partners that were shared at one time or another with Oracle, Autonomy is expected to bring in $1.1 billion in revenue next year, which would amount to less than 1 percent of HP’s forward revenue projection for 2012 of $127 billion. It’s going to be tough to make it pay. But like it or not, HP is stuck with it now.

Oracle Buying Hewlett-Packard? Fuhgeddaboudit!

Arik Hesseldahl — Fri, 30 Sep 2011 18:40:19 +0000

Amid all the recent drama that has unfolded at Hewlett-Packard — and the he-said she-said back and forth concerning Oracle and whether or not it was approached to buy Autonomy before HP ponied up — lies a lingering meme that refuses to die: That somehow the software giant Oracle is going to make a bid for HP.

Given the recent feuds between the management teams at the two companies, Oracle’s acquisitive history and HP’s sudden weakness, it doesn’t take much for a popular narrative of Oracle buying HP to emerge. It would be a dramatic denouement to the events of the last year that have found HP and Oracle at increasingly caustic loggerheads. Oracle CEO Larry Ellison would take some kind of victory lap and mount HP on the wall like a of trophy.

The idea gained some currency with an Aug. 21 story in the New York Post (which, like this Web site, is owned by News Corp.) arguing that HP’s $11.7 billion bid for the British software firm Autonomy, having caused shareholders to knock $12 billion and change off HP’s market cap, would therefore make HP more attractive to Oracle.

The meme gained further currency with a Bloomberg News story saying that HP’s board was “concerned” that its weakened condition had left it vulnerable to Oracle.

Let me put it like this: No. Just, no.

The first problem with the notion is this: What parts of HP would Oracle want to own? Answer: Practically none.

First, let’s look at the condition of Oracle: Its mainline software businesses are showing healthy returns, while its hardware business, built on the foundation of Sun Microsystems, the IT hardware concern it acquired last year for $7 billion, is ramping up to full speed. But here’s a fundamental truth: Software carries a higher profit margin than hardware, so when software companies buy hardware companies, they can’t avoid seeing their overall profitability erode.

Consider Oracle’s operating margin during its fiscal fourth quarter — its seasonally strongest quarter — during the last three years. In 2009, before the Sun deal was closed, it was 43.4 percent. In 2010, after the Sun deal was closed, it was 38.3 percent. In 2011 it was 41.6 percent. And during Oracle’s most recent conference call, CFO Safra Catz said Oracle hopes to get back to “pre-Sun” operating margins soon.

Now let’s look at HP and its operating margins: In its most recent quarter ended July, HP’s enterprise, storage and networking business turned in operating margins of 13 percent, which were down from 14 percent in the prior year’s period. The story was the same in practically every other HP business unit: Operating margins in services fell from 15.7 percent to 13 percent; in software they fell from 28 percent to 19.7 percent; imaging and printing margins fell to 14.6 percent from 16.9 percent. The only place they increased was the personal systems group — the PC unit that’s being considered for a spinoff — where they grew year on year from 4.7 percent to 5.9 percent.

Conclusion: Owning HP would do nothing good for Oracle’s profitability, especially at a moment when the stated goal is to nudge them up.

There’s more. As Mark L. Moerdler, an analyst at Bernstein Research, argued in a research note to clients on Sept. 26, software accounts for about 2 percent of revenue at HP. And what software it has is not the type that Oracle typically likes. When Oracle does acquisitions, it grabs companies that make applications that plug holes in its own product portfolio. The majority of HP’s software offerings — Autonomy nothwithstanding — deal with infrastructure management, not exactly a priority for Oracle. It is, however, a business where IBM and Computer Associates participate.

And there are two historically important business units at HP that would be outliers at Oracle: PCs and printers. Oracle has no interest in either one, and it’s hard to see that changing. Combined they make up more than half of HP’s annual revenue. In the hands of Oracle, they would probably end up being spun out, either together or separately, but why buy a whole company only to chop off more than half of it — a half that’s shrinking at that — at what would have to be unfavorable terms.

Let’s not forget the valuation estimate of HP’s $40 billion PC business: Analysts have expected that a hypothetical buyer might pay as little as $8 billion for it, or about one-fifth trailing revenue. Why go to all that trouble?

Further: Why would Oracle buy a company that’s roughly one-quarter exposed to the consumer market. Sure, HP has a retail distribution network that’s the envy of the PC industry. But Oracle would rather sell those retailers systems to help them manage their businesses, not the PCs they in turn resell at razor-thin margins.

If that’s not enough, then there’s one key bit about HP that Oracle would actively dislike. HP, by virtue of being the biggest distributor of Windows-based PCs and servers, is the world’s largest reseller of Microsoft Windows. If there’s anything more utterly antithetical to Oracle’s core values than helping put money in Microsoft’s pocket, I haven’t heard of it.

Finally, there’s the issue of cash. Even in its weakened state, HP is trading at a market cap of $45 billion and change. Assuming a premium for the whole thing, that pushes a hypothetical price tag to $60 billion. That’s too rich, even for Oracle, whose balance sheet as of Aug. 31 contained a combined $31.6 billion in cash and marketable securities. It would have to take on a tremendous amount of debt — amounting to 82 percent of fiscal 2011 sales — to get such a deal started, let alone closed.

HP’s directors and shareholders can rest easy. They have many worries about the Silicon Valley icon and the troubles in which it finds itself. But being acquired by Oracle isn’t one of them.

Apotheker's Exit Is Cheaper Than Expected for HP (But Still Pricey, Considering)

Arik Hesseldahl — Thu, 29 Sep 2011 22:01:17 +0000

Léo Apotheker is gone from Hewlett-Packard, but he left so suddenly that the board of directors didn’t have time to finalize his severance package. That is until today.

HP just filed an 8k with the U.S. Securities and Exchange Commission that outlines the terms under which he has agreed to leave. He will receive:

A severance payment in the amount of $7.2 million payable in installments over the next 18 months.
Accelerated vesting of 156,000 shares of restricted HP stock granted valued at $3,557,800 based on today’s closing price.
An aggregate of 424,000 of the 728,000 performance-based restricted stock units (PRUs) awarded under his contract. Apotheker has waived his right to receive the remaining 304,000 PRUs that would have vested on October 31, 2012. He’ll only get them if HP hits its annual cash flow targets and in that case it amounts to another $10 million.

He’ll also get:

An annual bonus of $2.4 million under the Hewlett-Packard Company 2005 Pay-for-Results Plan for his nearly 11 months of service with HP, payable Oct. 31.
Coverage of relocation expense back to Europe, and up to $300,000 coverage he incurs on the loss of the sale of his $7 million, six-bedroom house in Atherton, Calif.
Health benefits or payment for health insurance premiums for Apotheker and his family for 18 months.
Reimbursement of legal fees related to the negotiation of the agreement.

It could have been worse. According to the terms of his contract, which you can read here, Apotheker stood to walk away with somewhere between $28 million and $35 million, depending on how you added things up.

HP shares are trading at levels that are roughly half of what they were when he joined as CEO last year. With HP clearly worried that angry shareholders might sue over what might be perceived as an outsize severance deal after a rocky 11-month stint — which is exactly what happened after the ouster of former CEO Mark Hurd — the board of directors and Apotheker have negotiated the final terms of his exit with less trouble, sources said.

When he left last year, Hurd initially walked away with a package worth $35 million, prompting a shareholder suit against HP and its board of directors led by a Connecticut law firm that argued the board violated its fiduciary responsibilities.

Later on, after joining Oracle, Hurd forfeited 345,000 HP stock options then worth more than $13 million — but now worth only about $8 million — that were included in his severance package in order to settle a lawsuit against him and Oracle that was brought by HP.

Mike Lynch to Oracle: Oh, You Mean Those Slides

Arik Hesseldahl — Thu, 29 Sep 2011 12:51:53 +0000

Autonomy CEO founder Mike Lynch apparently took Oracle’s PR bait, challenging his memory of a meeting with Oracle at which he was said to be seeking a buyer for his company.

In a statement that seems not to have circulated as an official press release, but was emailed to a few U.K.-based tech journalists such as Chris Mellor at the Register, Lynch gives a more detailed account of the real reason for his “trip to SF” and his meeting in April with Oracle president Mark Hurd.

On one of my trips to SF (April 2011), Frank Quattrone, whom I have known for a long time, offered to introduce me to Mark Hurd. Oracle was a customer and I have never met him, so it was a good opportunity. Frank does this from time to time on my visits, he has introduced me to many people… NOTE: Frank was not engaged by Autonomy and there was no process running. The company was not for sale. I recall meeting with Mark and someone else I believe called Doug. At the start of the meeting they joked that Frank was there to sell them something. Frank and I made it clear that was not the case. We then met and had a lively discussion about database technologies. The meeting lasted approximately 30 mins. Frank is happy to confirm this.

Oracle’s corporate communications department, working unusually late, issued a retort that crossed the wires sometime after 1 am ET, calling Lynch’s statement “another whopper.”

It was no “lively discussion of database technologies,” Oracle says. Why bring two PowerPoint decks all devoted to Autonomy’s financial performance? Oracle, making good on last night’s implied threat to publish the decks, did so, and you can see them for yourself below.

Oracle published the slides in hope, it says, of restoring Lynch’s memory of a meeting he initially said never took place. “Yesterday, the Autonomy CEO did not remember having any meeting with Oracle,” the company said. “Today, he remembers the April meeting and inaccurately describes how it came about and what was discussed. Tomorrow, he will need to explain his slides.”

The kerfuffle is over Lynch’s defense of a comment Oracle CEO Larry Ellison made on a conference call with analysts last week. Asked about the current buzzword “unstructured data” and Oracle’s capabilities around it, Ellison engaged in his favorite hobby and took a jab at Hewlett-Packard — which last month said it would acquire Autonomy in a deal valued at $11.7 billion. “Autonomy was a shock to us. We looked at the price and thought it was absurdly high. We had no interest in making the Autonomy acquisition,” he said then.

He also went on to say that unstructured data can readily be added to Oracle’s existing database technology. “We think we’re much better off with a couple of smaller acquisitions and to continue to innovate in that area, so that the unstructured data and the structured data both find their way into an Oracle Database,” he said.

That, of course, didn’t sit well with Lynch, who has so far quietly endured criticism that HP is overpaying for Autonomy. In an interview with The Wall Street Journal, he denied that Autonomy was ever shopped to Oracle, and characterized Ellison’s understanding of the unstructured data problem as “very weak.”

Those, of course, were fighting words to Oracle, which decided to remind him of his April meeting with Hurd and Oracle’s M&A head Douglas Kehring.

It’s also helpful to remember that late last year Autonomy was being mentioned as the target of a bidding war between Oracle and Microsoft, according to a rumor-based story planted in the U.K.’s Daily Mail. Though such stories based on “takeover chatter” occur practically every day, someone with some skin in the game clearly wanted the markets to think Oracle was kicking Autonomy’s tires.

Lynch, of course, is really a proxy for HP’s new CEO Meg Whitman and Chairman Ray Lane, who have to get the Autonomy deal done and live with the price that former CEO Léo Apotheker agreed to pay for it. I asked Whitman about it last week, and she said “It is what it is.” The most interesting thing that has emerged from all this, however, is that Oracle claims to have considered Autonomy overpriced at a $6 billion valuation. HP paid almost twice that. Game on.

Autonomy Presentation 1 503341

Autonomy Presentation 2 503342

Oracle: You Have a Very Bad Memory, Mr. Lynch

Arik Hesseldahl — Thu, 29 Sep 2011 00:18:22 +0000

Was the British software firm Autonomy “shopped” last year to Oracle before it ended up in the arms of Hewlett-Packard?

In an interview with The Wall Street Journal today, Autonomy’s CEO Mike Lynch — the man sometimes described as the British Bill Gates — says Oracle was never approached as a possible buyer of his company late last year. Mentioned by bankers mulling possible acquirers, maybe, but never approached directly.

The statement came in response to a verbal slap by Oracle CEO Larry Ellison, made on an earnings conference call last week, that Oracle had been approached by Autonomy, and took a pass because the price was “absurdly high.”

Indeed, there were reports — one I remarked on at the time — suggesting that Oracle had kicked Autonomy’s tires, and Autonomy shares spiked on the very suggestion that the acquisitive Oracle would take the firm out. They obviously proved unfounded, and Autonomy went on its merry all-but-anonymous way until HP stepped in with an $11.7 billion offer that was announced on Aug. 18.

The latest version of events just emerged in a statement from Oracle. Oh yes, Oracle says, Lynch did indeed approach Oracle about a deal, and specifically made a pitch — complete with a PowerPoint presentation — to Oracle president Mark Hurd and to its M&A head Douglas Kehring. According to Oracle’s recollection, in a meeting attended by Lynch’s banker Frank Quattrone, Hurd told Lynch that he thought Autonomy was overpriced at $6 billion, roughly half of what HP paid. Also: Oracle still has the PowerPoint deck. Zing!

The full Oracle statement is below:

“After HP agreed to acquire Autonomy for over $11.7 billion dollars, Oracle commented that Autonomy had been ‘shopped’ to Oracle as well, but Oracle wasn’t interested because the price was way too high. Mike Lynch, Autonomy CEO, then publicly denied that his company had been shopped to Oracle. Specifically, Mr. Lynch said, “If some bank happened to come with us on a list, that is nothing to do with us.” Mr. Lynch then accused of Oracle of being ‘inaccurate’. Either Mr. Lynch has a very poor memory or he’s lying. ‘Some bank’ did not just happen to come to Oracle with Autonomy ‘on a list’.” The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone, and met with Oracle’s head of M&A, Douglas Kehring and Oracle President Mark Hurd at 11 am on April 1, 2011. After listening to Mr. Lynch’s PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr. Kehring and Mr. Hurd told Mr. Lynch that with a current market value of $6 billion, Autonomy was already extremely over-priced. The Lynch shopping visit to Oracle is easy to verify. We still have his PowerPoint slides.”

HP Hires Goldman to Guard Against Activists

Gina Chon and Anupreeta Das — Wed, 28 Sep 2011 23:45:59 +0000

Hewlett-Packard Co. has hired Goldman Sachs Group Inc. to help the company defend itself against possible activist investors who could push for change at HP, people familiar with the matter said.

HP has felt vulnerable to possible activist investor pressure amid questions about the company’s performance and strategic direction, the people said. The concerns intensified earlier this month when Leo Apotheker was ousted as chief executive and replaced by Meg Whitman.

Read the rest of this post on the original site »

After All Its Corporate Drama, Hewlett-Packard is Crazy Cheap, Bernstein Says

Arik Hesseldahl — Tue, 27 Sep 2011 21:06:13 +0000

While it’s true that technology giant Hewlett-Packard has suffered from an overdose of corporate drama — it’s now on its third CEO in 13 months — there’s something good to take away from it all if you’re an investor who’s been sitting on the sidelines. Toni Sacconaghi, an analyst at Bernstein Research, argues that at its current valuation, HP is trading at ridiculously cheap levels.

In a note to clients today, Sacconaghi says that HP is the “most inexpensive tech stock in the S&P 500 and the 10th most inexpensive stock overall.” There are very few precedents, he says, for large-cap technology stocks trading at HP’s current valuation. Before this month, there had not been a large-cap tech stock that traded at less than 5.5 times earnings — not in the last 20 years.

At that level, he says, HP’s current valuation implies that its annual free cash flow will decline by 9 percent a year forever or, put another way, that HP will be half its size within seven years. Usually companies that trade so low have significant structural problems. HP, for all its faults, doesn’t meet that standard. It’s not “a broken company,” he says, it’s on track to grow earnings by 6 percent this year, and it leads in three of its four key lines of business — PCs, printers and servers.

So why the crazy-low valuation? “Investor exasperation.” (There’s that word again!) Investors have discounted it too much given all the drama, making it, believe it or not, a buying opportunity for “patient investors.” He rates HP an “outperform” with a price target of $37. Investors seemed to warm to the idea. HP shares finished the day up more than 3 percent.

Five Questions for HP's New CEO Meg Whitman and Chairman Ray Lane

Arik Hesseldahl — Fri, 23 Sep 2011 13:30:21 +0000

It’s been an extraordinary week for Hewlett-Packard. On Monday, HP was a sleeping giant with an unclear strategy, an unpopular CEO and a stagnating share price.

Then word came, via AllThingsD, that something big was coming from the board of directors. And as AllThingsD first reported (again), HP directors made one of their own, Meg Whitman, the former eBay CEO who had become a director earlier this year, the new CEO. Léo Apotheker resigned, but don’t cry for him, because according to his contract, he made out rather well. Even before it was made official, investors applauded the move, sending HP shares skyward.

Analysts did what they always do, and, well, analyzed. And though it looked more like drama criticism, it’s not as if HP hasn’t known boardroom dramas before. Finally, the deed was done, meaning it was time to hold a conference call, but not before talking first to Kara Swisher of AllThingsD.

I got to talk to Whitman and HP Chairman Ray Lane yesterday, too, but I had to wait until after the conference call. With so many critics screaming that Whitman has no experience running an enterprise hardware company — and let’s be honest, there aren’t that many who do — I asked her to elaborate on the defense, made on the conference call with analysts, that her experience as a buyer of enterprise technology, during her years as CEO at eBay, provided important experience that will help her be an effective CEO at HP. I also asked about Autonomy, the British software firm that HP is in the process of acquiring for $10 billion, and how it will fit within HP; about the company’s plans for cloud services; and about the state of the HP brand amid all the corporate mishegas that has unfolded in the last several months.

AllThingsD: Meg, the main criticism of you, since you’ve been named CEO of HP, is that your primary experience before was at eBay, which is a consumer-facing company. The response on yesterday’s conference call has been that at eBay you were a purchaser of a lot of enterprise technology and that this gives you some important relevant experience. I get the point, but could you elaborate on it a bit? How does having been an enterprise buyer help you be HP’s CEO?

Whitman: What HP needs now more than anything else is management skills, communication skills and a commitment to executional excellence, all of which I know well, and are sort of core competencies from my 35-year career in business. I know technology because I ran a company whose very existence would not have been possible without it, and was a very significant buyer of technology products. And so that brings me a unique buyer’s perspective. But I have not spent 35 years in the enterprise business. Add so what that means is that I will be relying heavily on Dave Donatelli; on Todd Bradley; on the senior executives at HP; and also, frankly, on Ray Lane, who was at Oracle for many years, and EDS, and who knows this space well. So I think what customers will get is that one plus one equals three.

Lane: I agree with that. What we need here, and what we didn’t have before, is operational execution, communication skills, getting the team on the same page and leading them. The CEOs of $130 billion companies are not leading the technology development of those companies. I think Meg can go into any enterprise and visit with any CIO or CEO and do really well. So whether it is the technology side or the sales side, I don’t think anyone is giving her enough credit on those fronts. She can do just fine. And then on top of that she has strong operating executives under her who do know the enterprise business. But right now it is the need for leadership of the people, a focus on executing and operating. I could point back to Lou Gerstner at IBM, or even my own days at Oracle. When I joined Oracle, people thought the board had lost its mind, because I was a consultant at Booz Allen. People scoffed and said ‘How is a consultant going to lead the worldwide sales force at Oracle, a trained wolf pack?’ And somehow I figured it out. And I knew nothing about software, but I learned, and I learned from Larry Ellison, who is one of the best.

I want to talk a bit about Autonomy, and about unstructured data. You made a comment about that when you talked with Kara Swisher of AllThingsD yesterday. Talk to me about where you see Autonomy fitting within HP. Do you still intend to let it be independent? How do you see the alignment shaping up?

Whitman: It’s a big and fast-growing market. Of all the data out there, about 15 percent of it is structured and 85 percent of it is unstructured. And the unstructured data is growing by leaps and bounds. There are not a lot of good software companies that can help companies manage unstructured data and help companies make business decisions based on what they see in that unstructured data. So what we hope to do with Autonomy, and I’m enthusiastic about this acquisition, is take what is fabulous about Autonomy — they have a leading position in the marketplace — and put it through the very powerful HP distribution system. And I think what Mike Lynch is excited about — he is the founder and CEO of Autonomy — is taking this great product and getting it into more people’s hands. And we just need to grow this company as fast as we can; extend our lead and our accumulated experience in this area. So that’s the plan for Autonomy.

Lane: Yeah, I think the synergies are great, and I think it makes a lot of sense. It will make a lot of sense to customers if HP engages them in a dialogue of managing unstructured data.

You don’t think HP paid too much for Autonomy?

Whitman: You know what? It is what it is.

Lane: We wish we could have bought it for cheaper, but it was the market price. People thought we overpaid for 3Par, and you know what? We’re hitting it out of the park.

Is HP still going to be player in cloud services? That was a big commitment that Léo made in March. How far along is that plan?

Lane: Absolutely. The cloud is way ahead of plan. So our cloud services have gone live. So that is absolutely part of the plan, yes.

Meg, a lot of the same people who applauded your selection to HP’s board of directors are criticizing your selection as CEO. Why do you think there’s a disconnect?

Whitman: I don’t know. There’s always people who have different points of view on things. What I have to do — and I said this on the conference call — is lead this company, make it a great company again and fulfill its destiny as the icon of Silicon Valley and of California, and deliver the results. I will have to prove myself by delivering the results. If we’re going to restore the confidence that investors have in us, and that employees have in us, we have to deliver. We have to mean what we say and say what we mean and deliver the results. And that is what I intend to deliver.

Meg, you have a lot of history managing brands. I’m thinking of the job you had managing brands for Procter & Gamble. What’s wrong and what’s right about HP’s brand right now?

Whitman: I think HP is known as the world’s largest provider of information technology, and we are a trusted brand. We are a worldwide brand that touches both consumers and businesses. If you’re an enterprise, we have full suite of solutions. I know that when I bought enterprise hardware and software at eBay, I wanted one person to choke when something went wrong. I wanted one supplier to go to and say ‘Hey, this is not working.’ And so I think we have a fabulous brand in a world where technology is increasingly fundamental. I will say — and Ray would say this as well — I think we need crisper communications with all the constituencies. I think on Aug. 18 we confused people. We didn’t mean to do that, but we did. And so I think we’ve got some work to do around communicating crisply and cleanly about what we’re about — the moves that we’re making — to employees, customers, shareholders and, frankly, to the press.

Ray Lane's High-Profile Tech Friends Don't Necessarily Stay Best Friends Forever

Don Clark — Fri, 23 Sep 2011 12:00:27 +0000

Ray Lane hasn’t been shy about supporting high-profile friends in the tech world — or sharply revising his opinions as conditions changed.

Thursday the leader of Hewlett-Packard Co.’s board reversed his position on Leo Apotheker, a man Mr. Lane has known for 20 years and last fall called “ideally suited” to run H-P. The two men were appointed at the same time and worked closely together during Mr. Apotheker’s 11-month tenure as CEO. He was ousted Thursday.

In a 2010 interview, Mr. Lane, now 64 years old, said one reason he joined H-P’s board was the chance to work with Mr. Apotheker. He subsequently helped engineer a restructuring of the board that in January removed four directors and named five new ones.

Read the rest of this post on the original site »

The Meg Whitman Era at HP Begins With a Conference Call (Audio)

Arik Hesseldahl — Thu, 22 Sep 2011 22:51:35 +0000

And just like that, Hewlett-Packard, one of the world’s biggest technology companies and a Silicon Valley and American corporate icon, has a new CEO: Meg Whitman.

Whitman made her first pronouncements to the public and to the HP rank and file on a conference call today, along with Chairman — newly named executive chairman — Ray Lane. I recorded the call and pulled out some highlights you can hear below, courtesy of SoundCloud.

The decision to oust now former CEO Léo Apotheker was made after the board of directors observed “operational weaknesses” in his management. “It became increasingly clear that we needed new leadership to focus on operating our business more effectively to meet the challenges of today’s environment,” Lane said. “The board believes that the job of CEO requires additional attributes to successfully execute on the company’s strategic evolution.”

Whitman admitted that HP hasn’t been delivering the kind of results that investors have come to expect. “We’re not happy about it,” she said, promising that HP will have no higher priority than to get HP’s operations back on track. Her first public comments as CEO are in the audio clip below:

Meg Whitman’s First Public Comments as HP CEO by ahess247

The news of Whitman’s hiring as the new CEO obfuscated some comments from CFO Cathie Lesjak, who warned that HP may have another tough quarterly earnings report ahead. Blaming soft market conditions in Europe and from government agencies, Lesjak said HP will likely meet its per-share guidance issued on Aug. 18, non-GAAP earnings of $1.12 to $1.16 a share. However, she said she feels “less certainty with regard to revenue,” specifically around hardware sales. HP had forecast revenues in the range of $32.1 billion to $32.5 billion.

I’ve talked with sources familiar with retail PC sales, who tell me that the back-to-school season was pretty good in terms of the number of machines sold, but that PC manufacturers, including HP, had to slash prices aggressively to keep consumers interested and buying. That may turn out to be a contributing factor.

Another key factor will be commercial PC sales. Since HP started talking about spinning off its PC business on Aug. 18, some of its commercial customers have been acting on their uncertainty by holding back on new deals or buying from other vendors like Dell. CIOs hate uncertainty, and HP has been playing defense with many of its biggest customers since the announcement, seeking to reassure them that they can still do business with HP.

Whitman’s hiring has brought a lot of criticism that she doesn’t have sufficient experience running a large, enterprise-focused technology company. Lane defended the choice by saying that during her years running eBay, she was a big buyer of enterprise technology and that the experience should serve her well.

Raydefendsmeg by ahess247

Why not conduct an extensive search, considering candidates from both inside and out? Toni Sacconaghi, author of last week’s stinging research report about “exasperated” HP investors, asked about that. The implication was that HP’s board of directors had acted impulsively in hiring Apotheker last year and was doing so again in hiring Whitman. Lane reminded Sacconaghi that HP’s board has eight new members since those days, so it’s not the same group of people involved with the Hurd resignation and the Apotheker hiring. Hear his answer below:

Why no search at HP? by ahess247

And yet, despite having sent Apotheker to the exit, HP still intends to follow through, in broad brushstrokes, with the strategy he laid out. HP is still studying what to do with its Personal Systems Group, the unit that sells PCs to consumers and businesses. All options — a spinoff or no action at all — are still on the table. But as Whitman says here, in response to a question from Keith Bachman of BMO Capital, “That decision is not going to get better with age,” so the sooner it’s done, the better.

Decisionpsc by ahess247

Lane, asked by analyst Shannon Cross of Cross Research about the timeline of the decision to let Apotheker go, said the decision wasn’t made suddenly, but over the course of the last few quarters. After missing earnings forecasts for two quarters in a row, and with the communications mess that occurred on Aug. 18, it became clear, Lane said, that Léo had to go. Hear him explain it below:

Ray Lane: Help surround or replace? by ahess247