HP shares rose nearly 5 percent to $22.10, up $1.02 as of 11:15 am ET. Investors appear to be showing new confidence in HP and how CEO Meg Whitman is running the show. All the announcements that HP made yesterday bear repeating, because it was a busy afternoon:

 
Update: A few readers have written to point out I was wrong about HP’s old ticker symbol. It wasn’t HP but HWP. Silly me. Even so, if the Compaq name is headed for some lesser level of importance in HP’s future, then perhaps the Q in the ticker symbol, which was added as a nod to Compaq’s old symbol CPQ, to give the impression that the combination was more a merger of equals, should go. Given the choice between them, I would vote for HP. I should stress that I have zero indications that this is even under consideration, and is really just me ruminating.

Analysts had a mixed view. Chris Whitmore of Deutsche Bank Securities has been one of the more skeptical voices on HP’s turnaround prospects. “New sheriff, old game plan,” was the headline on his note to clients today. “We remain cautious on HP’s weak fundamentals, challenging macro conditions and deteriorating cash flow,” he wrote. Despite the beat on earnings, free cash flow — at $1.4 billion in the quarter — declined by half, pointing to what Whitmore calls “very poor earnings quality.” He rates HP as a “sell,” with a $20 price target.

Brent Bracelin of Pacific Crest Securities wrote that he remains unconvinced that an unexpected strength in HP’s PC unit is sustainable. “Apple and Samsung now account for 39 percent of market share across PCs, tablets and smartphones, and have a volume advantage relative to HP’s 6 percent share,” he wrote in a note to clients this morning. He rates the shares “market perform,” or neutral, and worries that HP’s biggest problem is that about half its sales are still tied to PCs and printers.

Whitman took to CNBC this morning to talk about HP’s situation. She portrayed the turnaround under way as about “10 to 15 percent” complete. That means there’s still a lot of work to do ahead. “We’ve laid a lot of pipe and done a lot of groundwork,” Whitman told the network’s anchors in a 13-minute appearance. I’ve embedded it below:

I’m joining HP’s conference call a little late — there was a lot of news to get through in the press releases and regulatory filings. As I’m typing, CFO Cathie Lesjak is running through the financial results. But the all-important Q&A with analysts is still ahead.

1:54 pm: Lesjak is talking about the results in the personal systems group. Consumer revenues declined 4 percent, while commercial sales of PCs increased 3 percent.

Services delivered 11.4 percent of sales, which was down. IT outsourcing revenue was down 3 percent as “we are being more selective in the deals we pursue.”

Technology Services revenue was flat. Imaging and printing revenue was down 10 percent and supplies revenue was down 12 percent.

Business Critical systems are down 23 percent year over year. Business continues to be impacted by continued revenue decline. That’s the Itanium lawsuit with Oracle hurting HP again.

Software revenue grew 22 percent to $907 million. Still too small to have a significant impact.

2:00 pm: Lead generation we are seeing across HP for Autonomy, but the company seems to be having a harder time closing deals on time.

Now on to the balance sheet: Our focus is to rebuild the balance sheet this year. We returned $350 million to shareholders via share repurchases. We also paid $251 million in dividend. $2.5 billion in operating cash flow and free cash flow of $1.5 billion. Total cash was $8.7 billion.

Lesjak is still speaking. She’s now getting into details on the restructuring. 9,000 employees will exit the company this year.

That amounts to about one third of the cuts to come this year.

We will be investing in technology and business processes. We expect to invest savings from headcount and non-headcount actions in a lot of things like cloud, software and services.

Non-GAAP fiscal EPS to be $4.05 to $4.10.

2:05 pm: Expect cash impact to be about $400 million in fiscal. Hm. This is interesting. HP is writing-down the value of the Compaq trade name it acquired in 2002. Does this mean the end of Compaq as a brand?

Here’s the Q&A. First from Katy Huberty of Morgan Stanley: Regarding free cash flow, the second quarter numbers were strong. Where do you expect free cash flow to end this year?

Lesjak: We haven’t been guiding cash flow. The way to think about it long term is that it trends in line with non-GAAP earnings. In Fiscal 2012 we expect $400 million and through 2014 we expect it to be $2.7 billion.

Huberty: Do you have a view yet if share gains in PCs were “sell out” or “sell in” after hard drive shortages?

Meg Whitman: We saw a good sell out in channel inventory. We feel pretty good in demand. We’ve struck the balance between design and the workhorse design that companies and governments need.

Bill Shope of Goldman Sachs: Can we return to mid-teens margins in IPG?

Whitman: We expect about 2 billion pages that will move from analog to digital. People at home are printing fewer photos, but we feel good about printing in the enterprise. As an industry leader we need to step up and act like one. We need to get pricing correct on ink and printers, and get the right product at the right time. In the enterprise we missed a cycle on multifunction color printers. And we have to look at business models in emerging markets. If you price the printer a little higher and the ink a little lower, you can sell a lot more printers and print a lot more pages. I think we’ve got the past four years really clear now.

Lesjak: On supplies decline. The vast majority of the decline was due to channel inventories this quarter. We expect that to modulate going into Q3. The caveat is that demand continued to be fairly weak. We’d like to take the inventories down a little in Q3.

Shope: Question on margins.

Lesjak: Go back to what drove the margins. One was supplies mix. This was caused by channel inventory corrections, but also softer demand and lower margins. Finally something we are not calling for a change, its the strength of the yen in our Laserjet business.

Whitman: Joining forces of IPG and PC business is going very well. PSG had a broader footprint in emerging markets. We’re going to leverage that. These were different divisions that didn’t coordinate as well as they could have.

2:13 pm: Toni Sacconaghi from Sanford Bernstein: I know you stated several times that you expect savings to be reinvested. If we take that literally and say 40 percent will drop to the bottom line, is that the right framework we should be thinking about? Is that the envisions balance given that you used the adjective majority?

Whitman: We have a well defined amount we’re going to get from headcount reductions. But there are other things: We are not to the point where we can make a decision about how much of that we can reinvest. We want to take a disciplined approach and evaluate return on invested capital. For example, we may get a lot of these savings. We’re only going to reinvest on those opportunities that make sense for HP long term. We’ll give more guidance on this at the end of Quarters Three and Four.

Toni: Your guidance. Even if you strip out the initial 5-10 cents from the guidance, it still implies a 30 percent Q3 to Q4 EPS growth, which is unprecedented. He’s basically trying to calibrate EPS expectations given the cuts.

Lesjak: The math we’ve done is that Q4 is in line with normal seasonality. We’re feeling like this is consistent with normal seasonality.

Toni: What are the offsetting forces?

Whitman: Overall we feel cautiously optimistic coming out of Q2. But we haven’t turned the corner. We are in the early stages of what we hope to achieve in the next few years.

We are in the early stages of a turnaround. They’re not linear. There may be a setback. And then we’re going through a lot of changes here. IPG and PSG are joined. There’s a lot of moving parts, but I don’t want to get out over my skis in terms of what we can deliver.

Lesjak is now talking about currencies. At the end of the day the currency we’re looking at right now is a headwind.

2:19 pm: Shannon Cross from Cross Research: Provide more color on how you are thinking of restructuring. Cuts across the board? Will there be any divestitures? More investments in back-office systems?

Whitman: Our restructuring is about three things. Align cost structure with the portfolio, (missed one thing), and then streamline operating model. Basically say, what do we want to focus on, how many people do we need to deliver. We came up with a bottoms-up approach to the cost savings we can achieve.

Then we have to make investments in the business. That includes back office tools and processes. We combined sales under John Hinshaw. We’ve put tools in. Once we do that you’ll see this company be a lot easier place to work.

Cross is asking about Autonomy. As we reported earlier: Mike Lynch is out.

Whitman: Autonomy delivered disappointing results. It’s not the product and its not competition. This is classic entrepreneurial company scaling issues. When you see a company scale like that it’s a whole different ball game. We need a new organizational structure to support a $1 billion+ company. This is something I’ve done before, having scaled eBay from $4 million to $8 billion, I’ve seen this movie before. I feel good about the product. I feel good about big data and analytics and it will hit all our business units.

2:23 pm: Brian Marshall of ISI: He’s asking about savings from cuts and how they will be reinvested. His question is breaking up a little in my audio.

Whitman: We’re looking toward organic innovation. We don’t see any major acquisitions on the horizon. There may be some tuck-in deals. The heritage of HP is a fantastic engineering culture.

We are going to increase the Research and Development budget considerably. We’re going to invest in product quality. We have good quality, but I think we can do better. And we’ve got some investment in internal systems.

Lesjak: We expect to save on an annualized run rate of $3 billion. It is from that pool of savings that we’ll be looking for reinvestment. That vast majority will be reinvested back into the business in places where we can grow.

2:27 pm: Question from Keith Bachman of BMO: First on services. You’ve ID’d that you want to take a number of people yet at the same time, there are areas in services especially where you need to nurture. How do you see headcount there?

Lesjak: What we’re doing is having a transition. It’s going from heavily weighted in slower growth to faster growing higher margin services. Cloud. Security, information management and analytics, and application modernization. As we do that, it has headcount implications. We’ve modeled that out a few years. I think it’s also important that this is a mix. But it’s not just about mix, including lean methodologies, so we get a better rate basis on contracts.

Bachmann: Net, you need to add people in services. Is the headcount up or down?

Whitman: I believe we will have a smaller more profitable services business.

2:32 pm: Next question from Ben Reitzes of Barclays. Asking Meg about China. You said things are turning around there. Also, a point about demand for PCs.

Whitman: I don’t want to get out over my skis concerning China. But it is doing better. We have a new head of APJ. We feel better about the distribution system there. We are seeing positive signs of a stabilization and turnaround. We announced our new line in China for a reason. I feel good about it, but it’s early days. But as you know, it has been a tough road for HP in China.

Lesjak: In industry standard servers in China, we are doing well. We are doing well there in networking.

Whitman: We have a fledgling but growing services business in China.

Now on to end-user demand for PCs. There is demand and there is a refresh coming from Windows 8. We still worry about Europe. My personal prediction is that Europe will get softer before it gets better.

2:35 pm: Whitman is wrapping up now. We have not turned the corner, but we have made real progress. We are excited about continuing to execute over the next quarter and years.

And that’s the end of the conference call. I’ll be back with some additional comments and color in a few minutes at the top of this post.

Separately, HP just filed an 8-K with the U.S. Securities and Exchange Commission concerning a restructuring plan. It reads in part:

As part of the restructuring plan, HP expects approximately 27,000 employees, or approximately 8% of the company’s workforce as of October 31, 2011, to exit the company by the end of fiscal 2014, with a portion of those employees exiting the company as part of a voluntary early retirement program for U.S. employees whose combined age and years of service exceed certain levels. The total number of employees ultimately affected will be impacted by the number of employees that opt to participate in the early retirement program. The changes to HP’s workforce will vary by country, based on local legal requirements and consultations with employee works councils and other employee representatives, as appropriate.

In connection with the restructuring plan, HP expects to record aggregate pre-tax charges of approximately $3.5 billion through the end of HP’s 2014 fiscal year beginning in the third quarter of HP’s 2012 fiscal year. Of that amount, HP expects approximately $3.0 billion to relate to the workforce reductions and approximately $0.5 billion to relate to other items, including data center and real estate consolidation. HP expects approximately $2.7 billion of those aggregate pre-tax charges to result in cash expenditures during the term of the plan. HP expects to amend its U.S. pension plans to facilitate the funding of a portion of the cash expenditures using available U.S. pension plan assets.

HP has now posted a news release with some details on the restructuring plan:

The idea is apparently to get things under way in the third quarter of this year, which is the current quarter, and to take charges of $3.5 billion by the end of 2014, most of it in workforce reductions. That is in line with CEO Meg Whitman’s claim that the turnaround is going to take a few years. The 27,000 jobs eliminated amount to about 8 percent of the workforce. Of that, HP will take a $1.7 billion pre-tax charge this year.

There’s also going to be some “SKU rationalization,” which is something I’ve written about before. Look for some products to get axed around this.

“While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long term health of the company. We are setting HP on a path to extend our global leadership and deliver the greatest value to customers and shareholders,” Whitman said in a statement.

As AllThingsD also told you last week, the changes will be made in order to reinvest in things like research and development, one area that’s widely thought to have suffered too much in the last decade or so. There will also be investments in services, software and enterprise hardware.

Another surprise: Mike Lynch, the CEO of Autonomy, the British software company that HP paid $12 billion for last year and which was seen as an albatross around the neck of prior CEO Léo Apotheker, is stepping down. He’s not the only one, as other former CEOs of software companies that HP has acquired also have departed about a year later. Bill Veghte, HP’s chief strategy officer and executive vice president of HP Software, will run Autonomy. I had been hearing rumblings that Lynch would be leaving, but was never able to track it down.

Here’s the earnings announcement. I’ll have more as I go through it.

HP Reports Second Quarter 2012 Results
PALO ALTO, CA–(Marketwire -05/23/12)- HP (HPQ)

Second quarter non-GAAP diluted earnings per share of $0.98, above previously provided outlook of $0.88 to $0.91 per share
Second quarter GAAP diluted earnings per share of $0.80, above previously provided outlook of $0.68 to $0.71 per share
Second quarter net revenue of $30.7 billion, down 3% from the prior-year period
Returned $601 million in cash to shareholders in the form of dividends and share repurchases
Company announces multi-year restructuring to fuel innovation and enable investment — see separate press release for details

HP second quarter fiscal 2012 financial performance
Q2 FY12 Q2 FY11 Y/Y
GAAP net revenue ($B) $30.7 $31.6 (3%)
GAAP operating margin 7.2% 9.4% (2.2 pts.)
GAAP net earnings ($B) $1.6 $2.3 (31%)
GAAP diluted EPS $0.80 $1.05 (24%)
Non-GAAP operating margin 8.9% 11.3% (2.4 pts.)
Non-GAAP net earnings ($B) $1.9 $2.7 (28%)
Non-GAAP diluted EPS $0.98 $1.24 (21%)

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

HP (HPQ) today announced financial results for its second fiscal quarter ended April 30, 2012. For the quarter, net revenue of $30.7 billion was down 3% year over year both as reported and when adjusted for the effects of currency.

GAAP diluted earnings per share (EPS) was $0.80, down 24% from the prior-year period. Non-GAAP diluted EPS was $0.98, down 21% from the prior-year period. Second quarter non-GAAP earnings information excludes after-tax costs of $356 million, or $0.18 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

“We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” said Meg Whitman, HP president and chief executive officer. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.”

Business Group Results

Personal Systems Group (PSG) revenue was flat year over year with a 5.5% operating margin. Commercial revenue increased 3%, and Consumer revenue declined 4% while Workstations revenue was down 1% year over year. Desktop units were up 5%, notebook units were down 6% and total units were down 1%.
Services revenue declined 1% year over year with an 11.3% operating margin. Technology Services revenue was flat year over year, Application and Business Services revenue grew 1% and IT Outsourcing revenue declined 3% year over year.
Imaging and Printing Group (IPG) revenue declined 10% year over year with a 13.2% operating margin. Commercial hardware revenue was down 4% year over year with commercial printer units down 7%. Consumer hardware revenue was down 15% year over year with a 13% decline in printer units.
Enterprise Servers, Storage and Networking (ESSN) revenue declined 6% year over year with an 11.2% operating margin. Networking revenue was up 2%, Industry Standard Servers revenue was down 6%, Business Critical Systems revenue was down 23%, and Storage revenue was up 1% year over year.
HP Financial Services revenue grew 9% year over year driven by a 4% increase in net portfolio assets and a 5% increase in financing volume. The business delivered a 9.9% operating margin.
Software revenue grew 22% year over year with a 17.7% operating margin, including the results of Autonomy. Software revenue was driven by 7% license growth, 17% support growth, and 72% growth in services. Autonomy saw a significant decline in license revenue.

To help improve Autonomy’s performance, Bill Veghte, HP’s chief strategy officer and executive vice president of HP Software, will step in to lead Autonomy. Veghte is an experienced software leader who will help develop the right processes and discipline to scale Autonomy and fulfill its promise. Mike Lynch, Autonomy’s founder and executive vice president for Information Management, will leave HP after a transition period. The market and competitive positioning for Autonomy remain strong, particularly in cloud offerings.

Asset Management
HP generated $2.5 billion in cash flow from operations in the second quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 2 days year over year to 28 days. Accounts receivable of $16.6 billion was down 4 days year over year to 49 days. Accounts payable ended the quarter at $12.9 billion, down 5 days from the prior-year period to 49 days. HP’s dividend payment of $0.12 per share in the second quarter resulted in cash usage of $251 million. HP also utilized $350 million of cash during the quarter to repurchase approximately 13 million shares of common stock in the open market. HP exited the quarter with $8.7 billion in gross cash.

Outlook
In connection with the restructuring efforts discussed in a separate press release issued today (http://www8.hp.com/us/en/hp-news/press-release.html?id=1247078), HP expects to record a pre-tax charge of approximately $1.7 billion in fiscal 2012 that will be included in its GAAP financial results for that period. Of that amount, HP expects to record a pre-tax charge of approximately $1.0 billion in its third fiscal quarter. The cash impact associated with the restructuring efforts is expected to be approximately $400 million in fiscal year 2012. Through fiscal 2014, HP expects to record additional pre-tax charges approximating $1.8 billion that will be included in its GAAP financial results for the applicable periods.

In May 2012, HP committed to a change in its PC branding strategy. As a result, HP has commenced an asset impairment analysis to determine the current value of the Compaq trade name acquired in 2002. Based on the preliminary results of that analysis, HP expects to record an impairment charge of up to approximately $1.2 billion that will be included in its GAAP financial results for its third fiscal quarter. There will be no cash impact associated with the impairment charge.

For the third quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.94 to $0.97 and GAAP diluted EPS to be in the range of $0.00 to $0.03.

Third quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.94 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges, and acquisition-related charges.

For the full year fiscal 2012, HP now estimates non-GAAP diluted EPS to be in the range of $4.05 to $4.10 and GAAP diluted EPS to be in the range of $2.25 to $2.30.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.80 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges and acquisition-related charges.

More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.

HP’s Q2 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012q2webcast.

The consensus among Wall Street analysts calls for HP to report sales of $29.92 billion and a per-share profit of 91 cents. And, for the most part, analysts are expecting HP’s results to be in line with expectations, if maybe a little light on sales.

One possible curveball, however, is Europe. Given HP’s exposure to the faltering markets on that continent, about which Dell complained in its earnings report yesterday, HP could conceivably see its results hurt more by Europe than by Dell.

Europe accounts for 37 percent of HP’s revenue, making it the most heavily exposed there among the large IT vendors. “The increasing uncertainty and resulting macro weakness in Europe will likely act as an ongoing headwind to growth,” wrote analyst Chris Whitmore of Deutsche Bank Securities in a note to clients Tuesday.

But the big item on the agenda will be HP’s plans for restructuring, and how many jobs may be lost. As AllThingsD reported last week, HP is contemplating a restructuring that could see as many as 30,000 jobs eliminated, including 5,000 through voluntary retirements. What’s unclear is over what length of time these jobs will go — I’ve been told by sources that this is a key detail, and it is likely to be a fairly long period of time.

The reductions would be the latest in a long, painful sequence of cuts for HP that began years ago. Whitmore notes that HP chopped 50,000 jobs over the course of five years under the tenure of former CEO Mark Hurd. “We suspect HP will position this cost cutting as ‘cut to reinvest’ — an interesting strategy considering HP has been restructuring for the past decade,” Whitmore writes.

Whatever restructuring Whitman puts on the table, Whitmore expects it will help HP maintain its prior guidance — it expects to finish the year with a per-share profit north of $4.00 — but it’s still not going to be easy. Summer PC demand is expected to be soft, and the lack of a tablet strategy isn’t helping. Demand for corporate PCs will likely be a rare bright spot, but just barely.

In printers, the relatively weak results of printer concerns Canon and Lexmark don’t exactly imbue the market with confidence that the trend of sliding profits and sales in HP’s printer operation, recently combined with the Personal Systems Group in a sweeping reorganization announced last month, is anywhere close to being reversed.

One thing to watch for — and something about which Whitman has hinted in the past — is SKU reduction. An SKU is industry lingo for “stock-keeping unit,” and it refers to specific models and makes and packages of a given product. Consumer printers — and, in fact, printers in general — would be an obvious place to cut back on the number of models offered to the market, and it would be perfectly in line with Whitman’s prior messages emphasizing simplicity and streamlining HP’s approach to the market. While I don’t expect Whitman to go on at length about this subject, it’s the sort of thing she may touch on as she hones the “simplicity” message.

What not to expect: One big bomb dropped all at once, outlining the sum total of Whitman’s long-term strategy for HP — one she has already admitted will take a long time to implement. The fact is, it’s a big job, probably one of the biggest in all of the corporate world, and so it’s necessarily coming out in pieces. Today’s piece will be a big one.

A report by Business Insider yesterday pegged the range of cuts at HP to between 10 percent and 15 percent of its current work force of 320,000 people. But sources familiar with HP’s plans tell AllThingsD that the cuts will be carried out over a relatively long period of time, perhaps a year or more. A report by Bloomberg News out minutes ago puts the target at 25,000. The exact number of cuts, one source told me, is still considered a “moving target” and could grow or shrink.

Additionally, sources say, Whitman will, during a conference call with analysts, portray the cuts as necessary — not to bolster HP’s earnings and satisfy shareholders, but rather as a means to make needed investments. On this point, Whitman will be borrowing a bit from the playbook of her short-lived predecessor, former HP CEO Léo Apotheker.

Whitman will argue that many of the cuts made at HP during the five years that Mark Hurd was at its helm were made without corresponding investments in new and growing initiatives. This “cut and reinvest” theme will apply across the company, sources tell me. The process has been an intense one among HP’s senior executive ranks and has, as one source put it, “consumed the company.”

Much like what happened at networking giant Cisco Systems, the restructuring will include a combination of voluntary retirement packages, the precise details of which are still under consideration, combined with outright cuts. The target for voluntary retirement, sources tell me, is about 5,000 people.

Brian Marshall, an analyst with ISI, in a May 3 note to clients estimated that a job reduction of about 18,000, amounting to about 5 percent of HP’s work force would, would save HP in the neighborhood of $1.2 billion and boost year-end earnings per share by about 50 cents, assuming a cost of about $100,000 per employee. “If HP institutes a reduction in force as we expect, we wouldn’t be surprised if calendar year 2013 EPS estimates eventually approach $5.00 as the business stabilizes, growth returns in the Jan 2013 quarter and the organization is streamlined,” Marshall wrote.

According to an internal HP memo issued yesterday, Donatelli, who last month took over responsibility for the Global Sales group from Jan Zadak, announced the consolidation of several regional sales teams around the world. Along with those changes were a batch of new or existing executive appointments, all at the senior VP level: Rich Geraffo is the new senior VP and general manager for the Enterprise Group in the Americas; Jim Merritt will run Asia-Pacific and Japan; Peter Ryan will run Europe, the Middle East and Africa. Randy Seidl will run the U.S., and Piau Phang Foo was named to run greater China.

The streamlining, as Donatelli calls it, leaves several people in their current jobs: Geraffo, Merritt, Ryan, Seidl and Foo all had the same title under the old Enterprise, Servers, Storage and Networking Group.

The odd man out appears to be Yves de Talhouët, who was named to run the Enterprise business in Europe last year under former CEO Léo Apotheker; Talhouët will be named to a new position later. In several cases in the past, but not always, this has been a sign that the person is being edged out.

It fits with the changes that CEO Meg Whitman announced in March, to “streamline and simplify” HP and the way it engages with its customers.

This is a group that has seen an awful lot of managerial change. Just a year ago, the group got a big jolt when Thomas E. Hogan, then executive VP for enterprise, left the company and Zadak was brought in.

Here’s Donatelli’s memo:

Dave Donatelli

Executive Vice President and General Manager

HP Enterprise Group

To: HP Enterprise Group Employees

Date: May 1, 2012

HP Enterprise Group Sales
Strategic Alignment

HP Restricted – For Internal Use Only

As you’ve heard from Meg, HP is embarking on a bold plan to make our company better. We are making significant changes to simplify our business to make it easier for our employees to get their work done, easier to sell and ultimately serve our customers better.

Today I am announcing a new Enterprise Group sales structure streamlined to ensure we make decisions faster, increase productivity and become more efficient and effective in our go to market efforts.

Effective immediately, we are consolidating the region and country sales leadership roles across Global Accounts, Enterprise Servers, Storage, Networking and Technology Services. The region leadership positions will be as follows:

Rich Geraffo – Senior Vice President and General Manager Enterprise Group Americas

Jim Merritt – Senior Vice President and General Manager Enterprise Group APJ

Peter Ryan – Senior Vice President and General Manager Enterprise Group EMEA

As the U.S. and China are key markets important to our overall success, I would like to announce the following leadership positions:

Randy Seidl – Senior Vice President and General Manager Enterprise Group U.S.

Piau Phang Foo – Senior Vice President and General Manager Enterprise Group Greater China

We will announce Yves de Talhouët’s position in the near future.

In addition, we are undertaking several strategic initiatives to ensure we are maximizing the company’s performance going forward. We will continue to improve our efforts in Supply Chain to respond faster to customer requirements, while at the same time capture additional efficiencies by simplifying our portfolio and rationalizing our approach to deliver high quality products and services to our customers.

While we are making the necessary strategic changes to improve our Enterprise Group business model, we are keeping many of the things we do well in place.

Our regional business unit structure remains the same, as does our front line sales team including business unit Specialists. If you are a sales Specialist today, your job is not changing. Our Account Managers continue to be important in representing one HP face to our customers. It is important that every customer-facing sales position continues selling to customers so that we deliver on our goals for this quarter. For all sales and service teams, it is our highest priority to maintain customer continuity and assurance that HP is the same, trusted advisor that will continue to deliver competitive solutions that uniquely solve our customers’ problems. The more customers we reach, the more customers will buy with the confidence that we are better than the competition.

Our Converged Infrastructure and HP Software IT Performance Suite strategies also remain unchanged. Together we have an ambitious goal to transform the industry, from servers, storage, networking and services all the way to the Converged Cloud.

We are undertaking this strategic sales alignment to improve the overall efficiency of our organization so that we

· make it easier for employees to excel in their everyday environments and future careers at HP

· continue to support our sales teams and channel partners to provide the best customer experience that is unique in the industry

· continue to invest in technology innovations to deliver solutions and services that further strengthen our portfolio

· optimize every aspect of our business model to ensure we are building a strong foundation for long term sustainable success

In the coming weeks you will see many announcements supporting the sales alignment. To keep you informed, all announcements will be posted as soon as they become available on the EG Organization Announcement website. I encourage you to check this website regularly for updates and watch for notifications of meetings in your specific region so you can remain up to date on all of the strategic initiatives we have underway.

Thank you for all your hard work to date. I am counting on everyone to deliver an outstanding performance in our second half. Going forward, I am confident this new structure will lay the foundation for long term business success.

Regards,

Dave

go to our new Timeline or share your top tech on Facebook

There aren’t too many techie happenings that are greeted with grumpy ire as when Facebook makes an interface change.

So when the social networking site rolled out Timeline to brand pages a few weeks back, we just decided to embrace it and have some fun.

To do so, we’re celebrating a decade of the AllThingsD conference, given it is our 10th anniversary this year.

We’ve selected about 50 of the biggest moments from the past decade in tech and placed them in our new Facebook Timeline , culled from a decade’s worth of significant people and stand-out gadgets collected by our ace editorial team.

The Timeline features commentary, links to articles from way back when and original, unpublished images from deep in the AllThingsD archives.

And when we didn’t have the right images, we just mashed some up, as you’ll see.

Looking for never-before-published images of a bearded Steve Jobs of Apple onstage at the very first D conference?

They’re in there (May 2003).

Or Kara Swisher’s very first snarktacular post on AllThingsD.com Yup, that too (April 2007).

Walt Mossberg’s thoughts about the very first version of Mozilla Firefox?

Certainly (November 2004).

Bonus points to you if you can find our special photoshop of Léo Apotheker “passing the Hewlett-Packard baton” to Meg Whitman (hint, look in September, 2011).

I’m pretty proud of that one.

But the Timeline of Tech is only half of what we’re launching on Facebook this week.

Our audience at the conferences and here at AllThingsD.com is full of well-informed tech insiders, so we also want everyone to hear your picks for the top moments in tech, as well.

To facilitate that, we’ve added a few questions for you to answer in a special Facebook tab called “Top Tech, which we’ll leave open for the next week or so.

Do you think that the interactivity of the Flip video camera changed the game? Would we all be talking via telegraph, if not for the release for the Microsoft Kin? And where would QR-code technology be without the CueCat?

Your top tech answers might just make it onto our permanent list.

After we take in all your submissions and talk them over, we’ll then pick the best to be permanently added to our Timeline of Tech.

We’ll even make sure that the ones we choose get the special AllThingsD Photoshop treatment.

Thanks in advance for your help — now go browse our picks and give us your suggestions for the most influential gadgets and biggest tech moments since 2003.

Go To our New Timeline or Share Your Top Tech on Facebook

Below is an internal HP memo sent to company employees on Friday. In it, Bradley names every key executive who will be responsible for running the new Printing and Personal Systems Group (PPS), which will essentially replace the existing Personal Systems Group (PSG) and the Imaging and Printing Group (IPG).

As previously reported, this business unit will be, by at least one key measure, the new big dog at HP. Based on 2011 sales, the combined group is responsible for $65 billion — more than 51 percent of HP’s overall sales. Yet the two groups are flailing: HP’s PC business is under attack, if for no other reason than the fact that prior CEO Léo Apotheker sought to spin it out and thus created some damaging uncertainty for the group’s longer-term prospects. Then there’s the little matter of Apple’s iPad and other tablets, a market segment where HP has no presence to speak of as yet.

The printing business, on the other hand, was once the financial engine that kept other bits of HP afloat. While printers are generally sold at a loss, ink cartridges and other supplies have been sold at much higher profit margins than other goods. The problem is that people are printing a lot less than they used to — and are showing the photos that they once printed on iPads and tablets, instead.

Anyway, Bradley’s team is listed in detail, below:

SUBJECT/ Organization announcement

TO/ All Printing and Personal Systems employees

March 23, 2012

HP Restricted – For Internal Use Only

As Meg said this week, this realignment is designed to make it easier for you to service customers, sell HP and make it easier for you to get work done.

In Printing and Personal Systems, this mission will be our passion and our focus, and we will lead from a position of strength. We are the global leader in printing and personal systems, and we have touched hundreds of millions of lives along the way. Now, as one team, we can accelerate our path to profitable growth while we deliver the best experience to more people.

Together, we are a $65 billion powerhouse with tens of thousands of employees around the world. But we haven’t reached our full potential. To accelerate our progress, we must act swiftly.

With this in mind, I am pleased to announce the best leadership team in the industry.

Global Business Units

Each of our four GBUs is accountable for product development and long term business results, working closely with the region and function teams. This begins with understanding customer insights, designing quality into our products upfront and delivering innovation that really matters to customers. These teams will work to provide a “better together” customer experience. The four GBUs are:

· Personal Computers led by James Mouton

· Inkjet and Web Solutions led by Stephen Nigro

· LaserJet and Enterprise Solutions led by Ron Coughlin. Mike Salfity and the platform development team will be hosted within Ron’s organization.

· Graphics Solutions led by Chris Morgan

Regions

To reach our potential we need to make it easier for our customers to buy from us, and for our sales teams to serve them. Together as one team, we have a clear opportunity to simplify and improve how we work with channel partners, drive market preference and expand our sales coverage.

Given the size and scope of PPS in the U.S., I have decided to create a new role within the traditional Americas region structure that is focused exclusively on our U.S. business. In all regions, collaboration is key during this transition to ensure we deliver on the fiscal year.

· Americas led by John Solomon. Within the Americas, Lynn Pendergrass will lead the U.S. Stephen DiFranco’s role will be announced at a later date. Meanwhile, Stephen will work with John and Lynn to ensure an orderly transition.

· Europe, Middle East and Africa led by Eric Cador. Bill DeLacy’s role will be announced at a later date. Meanwhile, Bill will work with Eric to ensure an orderly transition.

· Asia Pacific and Japan led by Dion Weisler. John Solomon will collaborate with Dion during the transition.

PPS Global Functions

Our functions are also closely aligning to help us will drive a more integrated and simplified approach to how we work. Again, collaboration will be key during the transition.

· Customer Service & Support led by Enrique Lores. Bruce Dahlgren will report into Enrique, leading Managed Enterprise Solutions.

· Operations led by Tony Prophet; Reinhard Winkler’s role will be announced at a later date. Meanwhile, Reinhard will work with Tony to ensure an orderly transition.

· Sales Operations and Project Management Office led by Joshua Brenkel

· EVP executive assistants are Denise Polanco and Susan Bergstresser

HP Global Functions

In the spirit of “One HP,” the following leaders are assigned to PPS, reporting to the respective EVP of their function.

· Finance led by Jon Flaxman, reporting to Cathie Lesjak. JJ Charhon, as previously announced, will lead finance for Enterprise Services.

· Marketing led by Eric Keshin, reporting to Marty Homlish; Manny Kostas’ role will be announced at a later date. Meanwhile, Manny and Eric will work together to ensure an orderly transition, including working with Henry Gomez to identify the communications professionals who will move to Global Communications.

· Human Resources led by Teri Eyre; Nancy Phillips’ role will be announced at a later date. Meanwhile, Nancy will work with Teri to ensure an orderly transition. Both Teri and Nancy report to Tracy Keogh, HR.

· Legal led by Gabriel Buigas, reporting to David Healy

These appointments are effective May 1. In addition to welcoming this team to their new and expanded roles, please join me in recognizing the remarkable contributions of all of the leaders of the former PSG and IPG organizations.

My team and I will provide clarity on the rest of the management team as quickly as we can after a thoughtful talent review. We intend to announce L3 leaders by May 1, L4 leaders by June 1, and to have all roles in the new organization clarified by August 1.* I will also hold monthly communication sessions to keep you up to date on what’s happening and ensure your questions and concerns are heard.

This is a great deal of change for each of us. But we must meet commitments to our customers, to our partners and to each other. The true strength of our organization cannot be captured in a simple organization chart — it is defined by the people who make HP work.

Thank you in advance for helping to drive PPS and HP forward.

Todd

*For those countries that require consultation with works councils or other employee representatives, this is not intended to provide country-specific information and in no way reflects that final decisions have been made at a local level. With respect to such countries, final decisions are subject to prior consultation with works councils and other employee representatives, and compliance with local law.

HP Shares closed down 52 cents to $23.46 a share, representing a drop of 2.17 percent in the wake of the official announcement of the plan, which AllThingsD reported yesterday.

While, on its face, the combination of the PC and printer groups into a single operation would save some operational costs, investors seem unconvinced that the move will make a sufficient difference to get the company moving in the right direction as CEO Meg Whitman has promised to do, though she’s conceded the turnaround will likely take years.

At least one analyst summed up the negative sentiment around the reorg. Rob Cihra of Evercore Partners called the move “uninspiring” and reminded everyone that HP made a similar move under former CEO Carly Fiorina back in early 2005 toward the end of her tenure. Her successor, Mark Hurd, broke the groups apart again before the year was out.

One thing Cihra appreciates is that Whitman is willing to admit where the troubles are: An over-levered balance sheet and a printing business that is suffering through a fundamental — not a seasonal — decline, among other problems. But, he writes in a research note issued to clients today, admitting the problem is only the first step. “It is encouraging for new CEO Meg Whitman to have started admitting issues others wouldn’t … Our concern is that any fixes look far from easy and likely involve a marathon, while ‘reorgs’ don’t even get HP to the starting line, in our view,” he wrote. Given the drop in HP’s share price, investors, for now, seem to agree.

In fairness to Whitman, she’s only six months into the job, and today’s move is only a first step. But the first step is pretty much an admission that a bigger change is on the way, including job cuts. “Everything is on the table,” Whitman told The Wall Street Journal today, though she declined to speculate on the number of jobs that might be eliminated. It’s going to be a rocky year at HP.

The reorganization appears to be bigger than we reported. There are a few other things, aside from the combination of the PC-making Personal Systems Group and the printer-making Imaging and Printing Group. One of them is a biggie: If I’m reading this right, then the $22 billion Enterprise Storage and Networking Group appears to have been renamed the HP Enterprise Group, and it appears that the $36 billion Services Group just got combined under Dave Donatelli. That is about as equally important a strategic shift as the other combination.

Update: Not quite so big, after all: HP just called to clarify that only Technology Services is being added to the Enterprise Group, not the Enterprise Services Group run by John Visentin. Sorry for that bit of confusion.

In another move, Global Sales will report to Donatelli, and will be combined into the Enterprise Group. And it looks like Jan Zadak, who had been on the rise since being promoted under Léo Apotheker last year to head Enterprise Sales, is going to get a “new role.”

So now we know what CEO Meg Whitman meant when she said she wanted to streamline and simplify HP’s operations. Operationally, she has created what appears to be one really huge organization in PSG ($65 billion in 2011 and flatlining) and to increase the size of the newly created Enterprise Group a bit by adding to it Technology Services and Global Sales. It’s hard to determine what the combined size of the organization is by revenue, because HP doesn’t break out sales for Technology Services.

Software appears to have been left alone in this shakeup, for now. That group is run by Bill Veghte, who was recently promoted to chief strategy officer, while another software operation, the Information Management Group, which combines Autonomy, the British software firm for which HP paid $12 billion last year and Vertica. It is run by Mike Lynch, the former Autonomy CEO. British software firm for which HP paid $12 billion last year.

Marketing functions have been unified under Marty Homlish, while communications have been unified under Henry Gomez.

Here’s the press release:

HP Announces Organizational Realignment

PALO ALTO, CA — (Marketwire -03/21/12) — HP (NYSE: HPQ – News) today announced an organizational realignment to improve performance and drive profitable growth across the entire HP portfolio.

As part of this realignment, HP’s Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) are joining forces to create the Printing and Personal Systems Group. The combined entity will be led by Todd Bradley, who has served as the executive vice president of PSG since 2005.

Vyomesh Joshi, executive vice president of IPG, is retiring after a highly accomplished 31-year career at HP. Under Joshi’s leadership, IPG has grown revenue from $19 billion to $26 billion, and doubled its operating profit to approximately $4 billion.

“VJ embodies the spirit of HP and his impact on the company has been tremendous,” said Meg Whitman, president and chief executive officer, HP. “Under his leadership, IPG accelerated innovation and pioneered solutions that transformed the printing market. We wish him the very best as he embarks on a new chapter in his life.”

Combining these two entities will rationalize HP’s go-to-market strategy, branding, supply chain and customer support worldwide. This will lead to a better customer experience and drive innovation across personal computing and printing. This realignment is expected to provide opportunities for cost savings and accelerate HP’s ability to pursue profitable growth and reinvest in the business.

“This combination will bring together two businesses where HP has established global leadership,” said Whitman. “By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders.”

In addition to combining PSG and IPG, HP also is taking steps to unify and streamline certain key business functions.

The Global Accounts Sales organization will join the newly named HP Enterprise Group. This group will be led by David Donatelli and includes Enterprise Servers, Storage, Networking and Technology Services.

The new structure is expected to speed decision making, increase productivity and improve efficiency, while providing a simplified customer experience. A new role for Jan Zadak, executive vice president for Global Sales, will be announced at a later date. Zadak will work with Donatelli to ensure an orderly transition.

HP also announced that it will unify its Marketing functions across business units under Marty Homlish, executive vice president and chief marketing officer, HP. This will allow for even more effective brand-building and marketing activities, and will create efficiencies across the business units.

HP’s Communications employees worldwide also will be similarly unified under Henry Gomez, executive vice president and chief communications officer, HP. Together these two moves will create a more powerful voice to demonstrate the power of “One HP.”

Finally, HP is moving the Global Real Estate function from Finance into Global Technology and Business Processes to address real estate consolidation and improve the workplace experience for HP employees.

“Ensuring we have the right organizational structure in place is a critical first step in driving improved execution, and increasing effectiveness and efficiency,” added Whitman. “The result will be a faster, more streamlined, performance-driven HP that is customer focused and poised to capitalize on rapidly shifting industry trends.”

Hewlett-Packard will announce a sweeping reorganization today that will move its Imaging and Printing Group, once the jewel in the IT giant’s crown, under its PC-making Personal Systems Group, sources familiar with the matter tell AllThingsD.

Under the plan, Vyomesh “VJ” Joshi, long the executive vice president in charge of IPG, will leave the company. The combined business unit will report to Executive Vice President Todd Bradley, sources said.

Vyomesh "VJ" Joshi

HP had no comment.

A source familiar with HP’s thinking regarding the reorganization said the combination of the two groups is part of a cost-cutting and simplification measure of the type discussed by CEO Meg Whitman during HP’s last earnings conference call on Feb. 22. During that call, Whitman discussed ways of streamlining HP’s operations, both in how it interacts with customers and in how its employees do their jobs internally.

HP sees the two business groups — IPG sells printers both to consumers and businesses, and PSG sells PCs to consumers and businesses — as making more operational sense combined than apart, the source said. The plan is to have their line of business more readily integrated so they can approach customers together and with unified product offerings.

IPG was once the financial engine seen as keeping the rest of HP flush. It sells more printers than anyone else in the world, but makes most of its money selling ink cartridges and other supplies that tend to make higher profit margins than the printers themselves.

However, the IPG unit has seen its business decline in recent years. In its most recent quarter, HP reported that sales fell by 7 percent, to $6.3 billion, while the unit’s earnings from operations fell by 32 percent.

At the time, HP attributed the slide in the unit’s fortunes to its exposure to Japan, where many of its printers are built by Canon, and sold at a loss. The strong Japanese Yen created a currency headwind that hurt the business, and ongoing supply chain problems caused by last year’s earthquake and tsunami in Japan — plus the flooding in Thailand — also hurt the business, the company said. Joshi, 57, is a 31-year HP veteran, who has run the group since 2002.

PSG is the unit that had been considered for a spinoff as an independent company under HP’s previous CEO Léo Apotheker. The plan was pulled back after HP’s board of directors fired Apotheker; Whitman shelved the plan, arguing that the PC business gives HP needed size and scale in order to more effectively negotiate with component suppliers. Bradley, 53, the onetime CEO of the handset maker Palm, has run the group since 2005, and was a candidate to be CEO of the spun-out PC company, had the move occurred.

The combined business operation will give Bradley responsibility for what is easily the biggest group inside HP. Together, IPG and PSG accounted for $65 billion in sales in 2011, or more than 51 percent of HP’s overall sales. Combined profits were $6.3 billion. At that size, the combined group will be substantially larger than HP’s services group, at $35 billion in 2011 sales, and its Enterprise, Servers, Storage and Networking Group, which recorded $22 billion in sales.

This would be the second round of cuts in the webOS group. The first came in September and affected about 500 people, bringing the total to about 775 since former CEO Léo Apotheker announced HP’s intention to end production of webOS hardware, after sales at Best Buy and other retailers failed to gain traction.

The webOS business has been a particularly difficult subject at HP. The company acquired Palm for $1.2 billion in 2010 under former CEO Mark Hurd. In a November filing with the U.S. Securities and Exchange Commission, HP said about half of a $3.3 billion in write-down came in the webOS unit.

HP just issued the following statement on the subject and it appears that some will get a chance to be redeployed elsewhere within the company. But make no mistake, most of those affected are being laid off:

“As webOS continues the transition from making mobile devices to open source software, it no longer needs many of the engineering and other related positions that it required before. This creates a smaller and more nimble team that is well-equipped to deliver an open source webOS and sustain HP’s commitment to the software over the long term.

HP is working to redeploy employees affected by these changes to other roles at the company.”

The cuts come after two key events in the webOS group’s recent history. One was the departure of former Palm CEO Jon Rubinstein, which was first reported by AllThingsD on Jan. 27.

Before that came the decision, announced in December by HP CEO Meg Whitman, to take the webOS software that Palm had developed and turn it into an open source project.

First is fixing our execution, ensuring we have the right systems, processes and people. This includes things like optimizing our supply chain, including SKU reduction, to remove unnecessary complexity from the way we design, manufacture and deliver products; upgrading our sales tools and systems to respond more quickly to customers; and increasing the productivity of our sales force by rationalizing our go-to-market.

For those who don’t know, a SKU — pronounced “skew” — refers to something called a stock-keeping unit. It’s business shorthand for a particular model or type of product. A PC with a certain processor, certain amount of memory and certain capacity hard drive, and in a particular color, is a SKU. The same goes for models of printers, smartphones, or different versions of products sold into different distribution channels or with different options inside the box.

What Whitman is saying is that HP is producing too many different types and configurations of products, and this is injecting a lot of expensive operational complexity that might be getting in the way.

My ears perked up at this during the conference call, and when she repeated the phrase on CNBC today (see video below). It took me back in time to — of all things — the very first Steve Jobs MacWorld keynote I ever attended. The year was 1998, the MacWorld Expo that year was in New York and I had begged my boss at the time to let me go. Apple was in those days a company that many media organizations could afford to ignore because its relevance was limited to people who used Macs, which included me.

This was the year the first iMac was about to explode on the scene, and indeed, Jobs talked in great detail about it during this keynote. But not before he set about explaining the strategic problems at Apple he had sought to solve during the preceding several months.

One of them was the fact that Apple made a comparatively dizzying array of computers, nearly all of them labeled with numbers that had no clear meaning to anyone. During his talk (part of which I’ve embedded in a grainy video below), Jobs wiped away the complex list in favor of a four-square grid with four kinds of products. Consumer desktops, consumer notebooks, pro desktops and notebooks.

For a young business reporter just starting out, which I was, the clarity of Jobs’s argument was a revelation: A complex product offering can cause problems both for the customer and the company selling the goods. First, it muddies the waters for customers, especially when two or more versions of a product suit a particular need. Second, it adds operational cost and complexity.

One product — say, a printer — may be manufactured in just one way, but then customized in a mind-numbing set of different variations for different lines of business. There may be different accessories in the box or different service options, or whatever. Each of these is a SKU all its own that has be tracked and marketed and sold and supported, adding costs along the way.

Being the biggest tech company by revenue, working in five major business segments and operating in 166 countries adds plenty of complexity by itself. Why make it more complex than it has to be? Clarity and simplicity work.

Let’s compare Apple and HP on their choice of computers. Shop for a Mac today, and the four-square grid that Jobs showed in 1998 still stands, mostly: There are two kinds of notebooks, and they vary by screen size, and three kinds of desktop machine each aimed at unmistakably different needs, for a total of six. Of course there are variations within them for memory and hard drive and screen size, but you get my point.

On HP.com I see six different notebooks for “everyday computing,” five ultra-mobile machines, six “high performance” notebooks and four machines sold under its “Envy” brand. I count 21 different notebook options, and I haven’t even looked at the desktop models yet. Does anyone really need that many choices?

A sense of clarity is good for business, and it’s an important lesson that many companies of a certain size have to re-learn from time to time. When Jobs learned it at Apple in 1998, its product complexity was nowhere near the level that Whitman now faces at HP. But we all know how keeping it simple worked out for Apple. And while the problem is probably an order of magnitude more complicated at HP, the fundamental business lesson still stands: A stripped-down product portfolio could work for HP, too.

Here’s part of the Steve Jobs keynote I mentioned above. This is Part 2, and he goes on to describe the simplified product strategy in the the first few minutes of part three here.

And here’s Whitman’s appearance from CNBC earlier today.

It was a tough quarter, which is something HP executives will likely remind us all about during the conference call that’s set to get under way any minute. There were challenges on every front, from the shortage of hard drives to the decline in demand for printers.

So what’s the plan now? Perhaps CEO Meg Whitman will give us a look at the year ahead. I’ll be listening in and reporting what I hear.

2:03 pm: Opening comments from Steve Feiler, head of investor relations. Meg and Cathie Lesjak will also be speaking.

The audio is a little off. Maybe Steve should sit a bit closer to the phone?

2:06 pm: And here’s Meg. We’ve been working hard to set the right tone and calm the waters. She’s been traveling the world, talking to HP employee and customers. Eighty customer visits. So what have I found? I have found some skepticism and some incredible support.

The more time I spend listening and learning, the more passionate and determined I become.

I want you to understand where we’re going and why. In Q1, our performance tracks pretty close to the expectations we set in November. That said, we met our guidance. It was a tough quarter, with troubles in every segment. With the supply challenges, we focused on profitability rather than volume.

Now on to the printer unit. All of you know IPG has been the lifeblood of our company for a long time. But we also have to recognize that the business is being pressured on multiple fronts. We have work to do here, and are working to rebuild IPG’s leadership.

Software is a critical part of our portfolio, and key to strategy. Autonomy acquisition is going well. We see synergies across all our businesses.

2:12 pm: Now on to the macroeconomic environment. The U.S. has some positive signs. Guarded about Europe.

In the six months I’ve been CEO, my perceptions of the business have changed. Her issues are in three buckets: One, simplicity. She’s talking about SKU reduction, which means reducing the number of models of different products. With that, Meg is taking a key page from the Steve Jobs playbook at Apple, circa 1997.

2:14 pm: The second bucket is investment. There’s another stab at prior management for not investing in key lines of business.

Our current cost base just isn’t supportable. We’ve been running our business in silos. It’s made us too costly and too slow. We need to standardize, optimize and automate many business processes.

We have got to save to invest. We have got to save to grow.

I have no doubt that we’ll turn HP around.

2:17 pm: And here’s CFO Cathie Lesjak running through the numbers. Half of the revenue decline came from hard drive shortages. We made the decision to prioritize profitability over volume. We expect the supply will remain constrained in Q2.

PSG reported $8.9 billion in sales, down 15 percent year on year. Shipments down 8 percent.

Wow, consumer PC sales down 25 percent. That’s gotta hurt. That’s part hard drive shortage, but also some damage taken by Apple and the iPad.

Lesjak is talking about the legal spat with Oracle. The uncertainty around the Itanium-based servers has hurt sales considerably and, as legal papers show, HP makes a lot of money servicing those servers.

Software is looking good generally, but it’s too small to make a dent in the weak results elsewhere.

2:26 pm: Lesjak: We remain cautious about consumer and business spending. Hard drives will remain a problem. We still have hard work to do to align inventory levels with demand.

The expected decline in revenue will impact margins.

Back to Meg: I’d really like you all to take away these three messages: We’re committed to clarity. Two, we’re getting back to basics. Three, we are building HP to last, focusing not on short-term expectations.

Time for Q&A with analysts: First question from Barclays. It seems like a tone change for the printer group. Last time, it sounded economic and not secular, this time it sounds like it’s secular. He’s also worried about reaching the $4 EPS guidance for the year.

Meg: In IPG, we face a number of challenges. It’s a more mature market. I’m convinced it relates to macroeconomic problem. The sell-through of ink is at low levels, and it’s not just our ink, but industrywide. We do see pockets in decline. Consumers are printing fewer photos. We’re steady as she goes. Going to think hard about accelerating new business to compensate for the loss in ink sales. Also, the headwinds from the Japanese yen will remain. It’s a terrific business, but we’ve got some work to do.

Lesjak is talking now about the guidance question. The usual seasonal pattern shows that the second half of the year is stronger than the first. We think the hard drive shortage will be largely over by the third quarter.

Lesjak: There’s also an inventory correction to work through that will be largely done in the second half. Also, Autonomy will start showing results in the second half.

Question from Goldman Sachs: When do you expect to return to a “steady state” in IPG? How should we think about steady state?

Lesjak: There are three impacts to IPG: We continue to see weak consumer demand. That’s a headwind for ink sales and what we expected. And then currency, and then there’s a channel inventory correction. We expect challenging demand, but without the same headwinds as in first half of the year.

Sanford Bernstein question: There’s evidence of significant share loss across all businesses. It doesn’t appear you’re ceding share to improve profitability, because the numbers don’t support it. The data points to a widespread lack of competitiveness. I know you’ve talked about stabilizing the business. What does that mean, and how do you get there?

Meg: We prioritized profitability. We made a decision to priortize profitable products and customers and regions. Reiterating, we hope to get through the hard drive shortage by the second half. We didn’t have the perfect match for the disk drives we needed. Those two business, I’m not worred about endemic share loss. If you look at some of our other business — printers and ink — takes me to three big challenges. I don’t know if it’s a widespread lack of competitives. Our own execution, turning orders into products faster than our competitors. We’re world-class in how we buy our components. Our systems and processes were underinvested. We have an enormous number of SKUs, which leads to complexity in support and in selling. Some of our competitors do some of those things better than we do.

Then the Business Unit leaders are working hard to lower their costs, bring new products to market. PSG has some great products coming up, and in ESSN, too. Each BU leader has to work on strategic challenges. We have got to make sure we own the tectonic plate shift. Cloud, information management and one other I didn’t catch (sorry).

2:40 pm: Lesjak: We shipped servers that were less richly configured as a result of the hard drive shortage.

Follow-up question: When you both mentioned this concept of stabilizing the business, what does that mean? Is that holding share, growing in absolute terms? How will investors know, and what is the time frame?

Meg: The first thing we have to do is stop the revenue decline. The second is, then we have to start growing revenue, you have to gain share in every single market. The unit cost is going down, and you have to sell more. I would hope that as we get through 2012, you’ll see revenue decline flatten out, and as we get into 2013, we’ll start to grow. It depends on how fast we can get after some of these challenges in the business. A lot of this is in our own hands.

Lesjak: We let you know what our outlook is, and we deliver to it.

Meg: If you look at companies who go through these turnarounds, these things are not done in less than two years, and often they take three to five years. You’ll see forward progress. We’ve got a journey ahead of us.

Morgan Stanley: How are you assuming Windows 8, Intel’s Romley chip and other things will help you stabilize the business?

Meg: We feel good about Windows 8. We have x86 products. We have good reviews on our first ultrathin product. The better Windows 8 is, the better off we are. We’re rooting for a great Windows 8 product. You have to remember that PSG is only a part of the entire portfolio.

Question from Raymond James: Why did HP have such a significant impact from hard drive shortage relative to competitors? What is it about the supply chain that is the biggest in the world that put HP at a disadvantage?

Meg: We focused on profitability versus share. It was a remarkably fluid situation. Matching drives you ordered with the models. We were not as effective as we needed to be. It showed us that we have some challenges in our supply chain. We’ve got to get better in taking an order and delivering a product.

2:47 pm: Meg: We were not as advantaged as I would have anticipated. I think we’re world-class at buying, but if you look at the whole thing, there’s some advantages we can get.

Cross Research: How are you interacting with your direct reports, and how are they breaking down the silos?

Meg: We actually are a team. We have a cadence and a rhythm in how we meet. I couldn’t be more pleased with how the team is working together. If you were to ask the senior team, it would be a pretty positive feedback versus previous management. One thing I’m working on is bringing the entire product portfolio to customers as one HP. Our biggest customers want to buy from one HP, and not from different segments. I think the executive council members say the relationship with the CEO is as good as its been.

Lesjak: We’ve moved out of offices and into cubes. We’ve spoken more frequently with Meg than we have in the entire year. More over-the-cube-wall quick discussions. (Wow, all the senior execs at HP work out of cubicles instead of offices?)

Missed an entire question there. I’ll catch the next one.

Meg: Talking about printer business. The yen is a real problem.

Cathie: If you look at the yen increase year over year, it’s like 7 percent. It has been increasing over the last couple of years. We’ve been able to absorb it when it just became too difficult to take the cost out fast enough to offset appreciation in the yen.

2:54 pm: Question about services investment. Where is the bottom in services margins?

Cathie: The performance we delivered was in line with the expectations we gave last quarter. Revenue was up 1 percent, or flat in constant currency. The services we put in that category are services around cloud and security. We are on this long-term turnaround, and we are making progress, but we did see some margin compression from contract renewal. Almost all contracts get renewed at lower prices. We’re making investments in processes and IT to increase our ability to take costs out of services quickly. If you look at the outlook for 2012, we expect margins will continue to be down.

Meg: The way you have to think about services, we are going through a multiyear turnaround. In services, we know what the problem is, we have a plan, but it’s not a quick fix. It goes back to the assets we acquired in 2008 (EDS), then ran right into 2009 and the global recession. This has to be our solution selling arm, but we have a multiyear journey ahead of us.

2:58 pm: Incidentally, as I’m typing, HP shares are down more than 1 percent after hours, and that’s after falling 1.4 percent during the regular session. The view of the market appears to be more negative than it was early on, when the mixed bag of numbers first hit the wires.

I missed Maynard Um’s question, however.

3:04 pm: One more question: One about streamlining processes and what it means for operating expenses. And a follow-up for Cathie about cash conversion levels.

Meg: We have a strategy that I’ve seen work many times before. We have to save so we can invest. We have to streamline processes, optimize the supply chain, reduce SKUs and rationalize the go-to-market. What never works is to keep your cost structure the same and layer investment over it. Stabilize declining revenues and gain share in the categories we can keep. This is what great leaders do.

Cathie: We pay our annual bonuses in Q1, we accrue the expense in the previous year. It’s typical that Q1 is a low cash-flow quarter.

Meg is wrapping up. She’s incredibly optimistic, but she and her team have a lot of work to do. And that’s it.

The EPS number exceeded the expectations of analysts, who had anticipated HP would report per-share earnings of 87 cents. But sales at $30 billion even were light of the $30.7 billion Wall Street had expected.

Sales of PCs fell 15 percent year over year with an operating margin of 5.2 percent. Consumer sales fell by 25 percent and corporate PC sales fell 7 percent, while sales on a unit basis fell 18 percent. HP had faced a tough quarter on many fronts. With the shortage in hard drives caused by the last year’s floods in Thailand sapping overall demand for PCs, sales have been tricky and it showed. Corporate demand was thought to be relatively stable, while consumer demand continues to be slow amid stiff competition from Apple’s iPad and a tough economy overall.

Tony Sacconaghi, an analyst with Bernstein Research, said in a research note to clients issued today that HP, despite being the world’s largest vendor of PCs, appears to have struggled more with the Thailand problem than any other vendor.

On the printer front, HP’s Imaging and Printing Group saw its sales decline by 7 percent with a shockingly low 12.2 percent operating margin, down from 15.4 percent in 2011. HP’s printer unit has significant long-term problems, not the least of which is the fact that people are generally printing less. At first blush, this appears to be a serious blow to a business unit that was once the pride of the company.

Enterprise servers, Storage and Networking saw a 10 percent decline overall. The Business Critical server business — the one involving servers running Intel’s Itanium chip, which is the subject of an HP lawsuit against Oracle — saw its sales decline 27 percent. Networking revenue was flat and everything else was down.

Software was a bright spot, but a small one. Sales were up 30 percent and services grew 108 percent, but again, that’s off a low base and nowhere near large enough to offset the troubles anywhere else.

HP’s guidance for the current quarter is also below the street consensus. HP says it sees earnings of 88 to 91 cents, versus the street forecast of 95 cents. There’s no change to the full-year EPS guidance calling for $4 a share in 2012.

HP shares are down by 19 cents, or less than 1 percent in after-hours trading as of 4:26 pm ET. It’s a mixed bag, so given Dell’s performance yesterday, it seems investors are willing to accept an EPS beat alongside a slight revenue miss.

That’s a quick look at the results. HP’s conference call with analysts begins at 2 pm PT. I’ll be dialed in and liveblogging the blow-by-blow.

Here’s HP’s statement:

HP Reports First Quarter 2012 Results
— First quarter non-GAAP diluted earnings per share of $0.92, down 32% from the prior-year period and above previously provided outlook of $0.83 to $0.86 per share
— First quarter GAAP diluted earnings per share of $0.73, down 38% from the prior-year period and above previously provided outlook of $0.61 to $0.64 per share
— First quarter net revenue of $30.0 billion, down 7% from the prior- year period
— Returned $1.0 billion in cash to shareholders in the form of dividends and share repurchases
PALO ALTO, Calif., Feb. 22, 2012 – HP today announced financial results for its first fiscal quarter ended January 31, 2012. For the quarter, net revenue of $30.0 billion was down 7% from the prior-year period, and down 8% when adjusted for the effects of currency.
GAAP diluted earnings per share (EPS) was $0.73, down 38% from the prior-year period. Non-GAAP diluted EPS was $0.92, down 32% from the prior-year period. First quarter non-GAAP earnings information excludes after-tax costs of $364 million, or $0.19 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
―In the first quarter, we delivered on our Q1 outlook and remained focused on the fundamentals to drive long-term sustainable returns,‖ said Meg Whitman, HP president and chief executive officer. ―We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP’s technology leadership.‖

Earnings highlights
Information about HP’s use of non-GAAP financial information is provided under ―Use of non-GAAP financial information‖ below.
Trends and regional performance
In the Americas, first quarter revenue was $13.2 billion, down 9% year over year and down 8% when adjusted for the effects of currency. Europe, the Middle East and Africa revenue of $11.7 billion was down 4% year over year and down 5% when adjusted for the effects of currency. Revenue in Asia Pacific was $5.2 billion, representing a 10% decrease year over year and down 12% when adjusted for the effects of currency.
Revenue from outside of the United States in the first quarter accounted for 66% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.1 billion, down 13% from the year-ago period, and representing 10% of total HP revenue.
Revenue in HP’s commercial businesses declined 4% year over year. Revenue in HP’s consumer businesses, within PSG and IPG, was collectively down 23% year over year.
Business group results
— Personal Systems Group (PSG) revenue declined 15% year over year with a 5.2% operating margin. Commercial client revenue declined 7%, Consumer client revenue declined 25% and Workstations revenue was flat. Total units were down 18%, with a 19% decline in desktop units and an 18% decline in notebook units.
— Services revenue of $8.6 billion grew 1% year over year with a 10.5% operating margin. Technology Services revenue grew 2%, Application and Business Services revenue was flat and IT Outsourcing revenue grew 2% year over year.
— Imaging and Printing Group (IPG) revenue declined 7% year over year with a 12.2% operating margin. Commercial hardware revenue was down 5% year over year with commercial printer units down 10%. Consumer hardware revenue was down 15% year over year with a 15% decline in printer units.
— Enterprise Servers, Storage and Networking (ESSN) revenue declined 10% year over year with an 11.2% operating margin. Networking revenue was flat, Industry Standard Servers revenue was down 11%, Business Critical Systems revenue was down 27% and Storage revenue was down 6% year over year.
— Software revenue grew 30% year over year with a 17.1% operating margin, including the results of Autonomy. Software revenue was driven by 12% license growth, 22% support growth and 108% growth in services.
— HP Financial Services revenue grew 15% year over year driven by an 8% increase in net portfolio assets and flat financing volume. The business delivered a 9.6% operating margin.
Asset management
HP generated $1.2 billion in cash flow from operations in the first quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 3 days year over year to 28 days. Accounts receivable of $15.9 billion was up 2 days year over year to 48 days. Accounts payable ended the quarter at $12.4 billion, down 2 days from the prior- year period at 48 days. HP’s dividend payment of $0.12 per share in the first quarter resulted in cash usage of $244 million. HP also utilized $780 million of cash during the quarter to repurchase approximately 29 million shares of common stock in the open market. HP exited the quarter with $8.2 billion in gross cash.

Outlook
For the second quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.88 to $0.91 and GAAP diluted EPS to be in the range of $0.68 to $0.71.
Second quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
There is no change to HP’s previously provided full year fiscal 2012 outlook of non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.
Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
As part of its annual financial review process, HP implemented several organizational realignments effective Q1 FY12. To provide improved visibility and comparability, HP has reflected these realignments in prior financial reporting periods on an as-if basis. These realignments resulted in, among other things, the transfer of revenue within and among various financial reporting segments and business units. The changes do not impact HP’s previously reported consolidated net revenue, earnings from operations, net earnings or earnings per share at the company level. To reflect these changes, HP released modified quarterly and annual consolidated condensed statements of earnings, segment financial results and statements of business unit revenue for fiscal 2010 and 2011, which are available on HP’s Investor Relations website at www.hp.com/investor/home.
More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.
HP’s Q1 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012Q1webcast.

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.
  ]]> http://allthingsd.com/20120203/hp-ceo-whitman-earned-one-dollar-plus-16-million-in-2011/feed/ 0 http://allthingsd.com/20120124/add-another-log-to-the-fire-hp-employees-grumble-about-loss-of-stock-grants/ http://allthingsd.com/20120124/add-another-log-to-the-fire-hp-employees-grumble-about-loss-of-stock-grants/#comments Tue, 24 Jan 2012 13:00:06 +0000 Arik Hesseldahl http://allthingsd.com/?p=164362

  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.

  ]]> http://allthingsd.com/20120124/add-another-log-to-the-fire-hp-employees-grumble-about-loss-of-stock-grants/feed/ 0 http://allthingsd.com/20120120/seven-questions-for-bill-veghte-hewlett-packards-new-chief-strategy-officer/ http://allthingsd.com/20120120/seven-questions-for-bill-veghte-hewlett-packards-new-chief-strategy-officer/#comments Fri, 20 Jan 2012 15:25:03 +0000 Arik Hesseldahl http://allthingsd.com/?p=165843 Earlier this week, Hewlett-Packard gave Bill Veghte, its executive vice president for software, a new title: Chief Strategy Officer. The job has been vacant since Shane Robison retired last year.

  Veghte joined HP in 2010 after 20 years at Microsoft, where he managed the $15 billion Windows business and oversaw the launch of Windows 7. At HP, he has been credited with growing its software revenue by 18 percent last year.

  Given Veghte’s history as a software guy, his appointment to this role can’t help but be seen as a key signal by CEO Meg Whitman of the role she sees software playing in HP’s strategy going forward. That was one of the things I asked Veghte about when we spoke by phone earlier this week.

  AllThingsD: What, in your view, is the role of the chief strategy officer at HP, and what do you expect it to entail in the coming year?

  Bill Veghte: As we’re out talking to customers, they’d like to buy more from HP; they’d like HP to be more successful. They look at the advances we’re making in networking or storage or printers, but they want to know why the whole is greater than the sum of is parts. What is HP’s strategy for continued leadership in the market transitions that are going on? And some customers would say that where HP is concerned, that’s not a fully realized opportunity.

  And you’re coming at it from the software part of the business, and we’ve heard from Meg saying she’d like to grow opportunities in software. Your appointment, to me, sends a bit of a signal that software is going to be a big part of HP’s strategy to get things turned around. Is that accurate?

  I think, certainly, as I talk to Meg and Ray [Lane, HP chairman], and with the members of the executive committee, I’ve found that this is a catalyzing role. If done right, there are different models of strategy in different Fortune 500 companies. And the one that makes sense here is catalyzing with other business units. Whether that’s Vijay Joshi in printing and imaging, or with Todd Bradley in PCs, or John Visentin in the enterprise group, there’s a strategy that each one of those is trying, and which is accretive to a whole that is greater than the sum of the parts. And so, to the extent that software is glue or networking is glue, I think it’s a statement that has more to do with a pan-HP strategy than something that’s specific to software.

  What’s Job One, starting on your first day?

  Job One is making sure that as we have those conversations with customers, they see an HP that is unified around a set of constructs and offerings that deliver what they need. It’s different from having offerings that are, by themselves, individually great. It’s about having unifying themes and constructs.

  It seems that you’re talking about finding a way to routinely and thoughtfully combine different things that HP makes or does, in ways they aren’t being done now. Is that what you’re getting at?

  I think that very accurately characterizes the opportunity. When we talk to the leadership team, we hear a lot of the same thing. There is a lot of great stuff within HP, whether you get that in terms of market position, or IP, or people. I like how you put that: How do you routinely and thoughtfully combine things, particularly in light of the market inflections that are happening. We are in a tectonic shift, and that can be an opportunity, if you clearly spell out the value proposition for customers. Not only in each one of the units, but where you’re thoughtfully combining them so that the whole is greater than the sum of its parts.

  I thought of an example around meeting the needs of the market. There was an IHS iSuppli report out earlier this week about cloud servers, which are growing. But customers are going to Taiwanese ODM companies to get customized products, while at the same time cloud servers are growing generally. Is this the sort of thing that might affect HP?

  I was talking to Dave Donatelli [general manager of Enterprise Servers] about this recently. It’s interesting, because it seems like in more recent months it has flipped back, because of the integration within that customization. A great example that Dave and I have been working on is the whole cloud system piece. You’ve got a lot of great stuff in automation and orchestration software that is inherently cross-platform, and which crosses virtualization engines and marrying that deeply with the converged infrastructure. We’re the only company that can give you a single stack, soup to nuts, from a single vendor. The core construct is that there’s a lot of private cloud build-out going on, and those customers who are doing it are saying they don’t want to be the systems integrator for six different vendors, and they also prefer not to be locked in to a single vertical stack. That’s a huge advantage for us. And to your point about routinely and thoughtfully combining, we should do exactly that. It’s been doing well for us in the marketplace, but how do you make that routine against the opportunities we see in the marketplace?

  You spent about 20 years at Microsoft. How does that inform what you’re bringing to this job?

  At the core, any of these jobs are about identifying and exploiting market shifts for customers. I had the privilege of having a front-row seat during some big marketplace disruptions, and helping catalyze businesses and delivering superior market positions and solutions. It’s all about handling change, and turning it into an opportunity.

  ]]> http://allthingsd.com/20120120/seven-questions-for-bill-veghte-hewlett-packards-new-chief-strategy-officer/feed/ 0 http://allthingsd.com/20120110/menry-is-back-at-hp-ceo-meg-whitman-hires-longtime-pr-guru-henry-gomez-as-top-flack/ http://allthingsd.com/20120110/menry-is-back-at-hp-ceo-meg-whitman-hires-longtime-pr-guru-henry-gomez-as-top-flack/#comments Tue, 10 Jan 2012 22:18:28 +0000 Kara Swisher http://allthingsd.com/?p=162537

  Through many years of working together, first at eBay and then during the failed California governor’s race, Meg Whitman has relied heavily on Henry Gomez for communications advice.

  Their close working relationship even earned them the mash-up nickname among those at eBay and elsewhere: Menry.

  So when she got the CEO job at Hewlett-Packard, it was a bit of a surprise that Gomez — who has recently been living on the East Coast (see baseball cap above) — helped out a lot, but was not named to the top PR slot at the tech giant.

  No longer, it seems, with Gomez being named EVP and Chief Communications Officer at HP today.

  It’s a big job, given the hard work that Whitman faces reviving the iconic tech company, which has been beset by strategic and business challenges of all kinds, shapes and sizes in recent years.

  While it might be seen as an adjunct to the business, the forward-facing parts of HP are in need of a powerful public relations initiative, which is presumably why Whitman wanted one of her most trusted and longtime staffers in the post.

  According to HP, Gomez will become a member of the company’s executive council and report directly to Whitman.

  Said HP in its press release, which you can also read below: “Gomez will be responsible for HP’s media and industry analyst relations, executive communications, employee communications, government affairs and global social innovation.”

  As in, the voice of Menry is back!

  Here’s the release:

  HP Names Henry Gomez Executive Vice President and Chief Communications Officer

  PALO ALTO, CA, Jan 10, 2012 – HP today announced that Henry Gomez will join the company as executive vice president and chief communications officer.

  Gomez also will become a member of HP’s executive council, reporting to Meg Whitman, HP president and chief executive officer.

  In this newly expanded role, Gomez will be responsible for HP’s media and industry analyst relations, executive communications, employee communications, government affairs and global social innovation.

  Gomez, 48, comes to HP with 26 years of communications experience. He spent most of the last decade working at eBay, where he served in a variety of roles including senior vice president for Corporate Communications and president of Skype. Gomez played a crucial role in building eBay’s brand during the critical years following the company’s initial public offering.

  Prior to joining eBay, Gomez was vice president of Corporate Affairs at HBO in New York. He started his communications career at Hill and Knowlton and has worked on a wide array of public relations and marketing communications challenges in numerous industries.

  Most recently, Gomez ran his own consulting business, providing communications counsel to clients such as H&R Block. He was on the leadership team of Whitman’s 2010 campaign for governor of California and has been involved in government and political affairs throughout his career. In 2011, Gomez was appointed to the board of BJ’s Restaurants, Inc. He is a graduate of Boston College.

  “Henry is an excellent manager and communications executive,” said Whitman. “People around the world care deeply about HP, and I believe we have an important obligation to clearly explain where we’re headed and why. Henry will work closely with the entire leadership team to make certain customers, partners, employees, and shareholders fully understand our vision and strategy.”

  About HP HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com .

  ]]> http://allthingsd.com/20120110/menry-is-back-at-hp-ceo-meg-whitman-hires-longtime-pr-guru-henry-gomez-as-top-flack/feed/ 0 http://allthingsd.com/20120102/what-have-we-learned-from-the-mark-hurd-letter/ http://allthingsd.com/20120102/what-have-we-learned-from-the-mark-hurd-letter/#comments Tue, 03 Jan 2012 00:11:33 +0000 Arik Hesseldahl http://allthingsd.com/?p=159002

  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.)

  ]]> http://allthingsd.com/20120102/what-have-we-learned-from-the-mark-hurd-letter/feed/ 0 http://allthingsd.com/20111230/resolutions-for-2012-comic/ http://allthingsd.com/20111230/resolutions-for-2012-comic/#comments Fri, 30 Dec 2011 22:30:12 +0000 Nitrozac and Snaggy http://allthingsd.com/?p=158420
  ]]> http://allthingsd.com/20111230/resolutions-for-2012-comic/feed/ 3 http://allthingsd.com/20111226/has-the-hp-touchpad-lost-its-resale-luster/ http://allthingsd.com/20111226/has-the-hp-touchpad-lost-its-resale-luster/#comments Mon, 26 Dec 2011 18:44:28 +0000 Lauren Goode http://allthingsd.com/?p=156919 After a resale run that had consumers clamoring for the discontinued tablet, has Hewlett-Packard’s TouchPad finally lost its appeal?

  If eBay and Amazon listings are any indication, that appears to be the case.

  

  Amazon.com currently lists 59 new 16 gigabyte Wi-Fi TouchPads, ranging in price from $263.69 to $272.99. There are also 18 used TouchPads (and a couple of refurbished ones) being sold via the site.

  EBay shows more than a hundred 32GB TouchPads for sale, some available through auction and others through immediate purchasing, ranging from $225 to $350 (yes, really).

  It’s a far cry from the fire sale on the device earlier this month, through HP’s own eBay channel. It was reported that the computer maker went through its remaining inventory in minutes at resale.

  Of course, TouchPads were then going for a mere $99 — much less than the original asking price of $399 (for 16GB) and $499 (32GB).

  The TouchPad first hit stores on July 1. But it failed to catch on with consumers, and HP announced six weeks later that it would be exiting the hardware business of its webOS software system. That meant the death of the TouchPad, which had seen disappointing sales, to put it kindly.

  Suddenly, the discounted device became a hot item, with some vendors reselling fetching nearly $300 for the tablet on eBay.

  In October, the tablet was offered as a part of a bundle with any HP- or Compaq-branded PC, through Best Buy, which had sold less than 10 percent of the 270,000 TouchPads it had in stock.

  It’s hard to say whether the TouchPad would still be flying off virtual shelves now, post-holiday, if it was listed at a lower price point. HP recently decided to open up webOS to the outside development community, but there are still questions about the future of the platform. With no new apps coming for the killed tablet, and with users facing the possibility of a lack of technical support — not to mention the entrance of the $199 Kindle Fire into the tablet market — it’s hard to imagine that many people will want to pay exorbitant prices for HP’s tablet.

  But for now it’s safe to say that consumers don’t seem to want to touch the TouchPad anymore.

  ]]> http://allthingsd.com/20111226/has-the-hp-touchpad-lost-its-resale-luster/feed/ 20 http://allthingsd.com/20111219/could-security-be-hps-unexpected-strength/ http://allthingsd.com/20111219/could-security-be-hps-unexpected-strength/#comments Mon, 19 Dec 2011 14:44:27 +0000 Arik Hesseldahl http://allthingsd.com/?p=154967 Hewlett-Packard is, after much mishegas in its C-Suite, on the mend. CEO Meg Whitman has set the expectation that 2012 is going to be a year devoted to getting the company back on track and, among other things, rebuilding its balance sheet after a year and change of painful twists and turns that have shaken the confidence of investors and analysts in the venerable tech giant, once considered a relative safe bet among tech stocks.

  With its shares trading down 39 percent since the end of 2010, there’s clearly still a lot of work to be done. But analysts are taking notice and expressing new confidence. In a note to clients this morning, ISI analyst Brian Marshall says HP is looking better for a variety of reasons — one of them is its little-noticed IT security business.

  If you break down HP’s various lines of business, you’ll find, Marshall argues, that its security assets are surprisingly strong. In 2009 and 2010, HP made two key acquisitions in the area of security: It spent $1.5 billion for ArcSight, a security software player; before that, it nabbed the networking concern 3Com for $2.7 billion. A key asset in that deal was TippingPoint, a network intrusion prevention product.

  Marshall writes that HP’s security assets bring in about $1.5 billion in sales and are growing at about 30 percent year, with gross profit margins in the neighborhood of 80 percent. This compares favorably with security outfit Check Point, which trades at a multiple of about 10 times sales, Marshall says.

  Security is going to matter a lot more to HP’s corporate customers, as they start sweating over intrusions by hackers and nation-states poking holes in the infrastructure and looking for valuable information to steal, he says.

  If you conservatively assume that HP’s security assets are worth half as much as Check Point, or only five times sales, and then assume that they report a reasonable $2 billion in revenue in calendar 2012, (nearly 2 percent of HP’s expected total sales), you wind up with a business unit that’s worth about $10 billion, or one-fifth of HP’s market cap. Suddenly, the security push that HP announced in September makes a lot more sense.

  Security, Marshall says, is just one leg of a four-legged stool that HP has in its favor. The other three legs are its enterprise storage, networking and server businesses, and the “seat” of the stool which tie them all together are the software and IT services businesses. The one weakness, he concedes, is its software portfolio, which has historically been small and limited, and accounts for about 2 percent of sales despite such big acquisitions as Mercury Interactive and Opsware.

  Even so, Marshall sees a 30 percent upside to HP’s valuation, and has pegged it with a $34 price target and Buy rating.

  ]]> http://allthingsd.com/20111219/could-security-be-hps-unexpected-strength/feed/ 0 http://allthingsd.com/20111209/hps-whitman-we-have-to-walk-before-we-can-run-with-webos/ http://allthingsd.com/20111209/hps-whitman-we-have-to-walk-before-we-can-run-with-webos/#comments Fri, 09 Dec 2011 20:47:38 +0000 Arik Hesseldahl http://allthingsd.com/?p=152542 I just got off the phone with Hewlett-Packard CEO Meg Whitman and one of HP’s directors, Marc Andreessen. We had a quick conversation about today’s decision to share HP’s webOS with the open source community.

  And though the immediate question over whether or not HP would ultimately keep the platform or sell it to someone else is now answered, it was clear from talking with Whitman and Andreessen that there are still a lot of issues to sort out. There are questions about business models, how to work with outside developers, hardware manufacturers, and even over how many people will keep their jobs.

  It’s also notable that Andreessen was on hand because of his history with open source projects. As the creator of the Netscape Web browser, Andreessen was there for that company’s much-remembered IPO, its acquisition by AOL, and the transformation of the Netscape browser into an open source project now called Mozilla, which produces the popular browser Firefox.

  My first question was about what kind of contribution — both financial and otherwise — HP is prepared to make to this new open source project.

  AllThingsD: Meg, do you have any thoughts on how much you’re going to contribute to this webOS effort in terms of money and people at this point?

  Whitman: I won’t give you a dollar number but I will tell you that it will be a substantial software investment but it will not break the bank at HP. This is a wonderful asset, actually, but what I was telling employees this morning is you’re a start-up now. You’re a start-up with a number of people, 750,000 installed devices out there, and with your first venture capitalist, and that’s HP. And let’s go figure out how to change the world out there.

  The thought that it’s now a start-up makes me want to turn to you, Marc, and ask, what do you think of that?

  Andreessen: I’ve been lucky enough to have been involved in a number of what I think have turned out to be very successful open sourcing projects that are a lot like this. And of course the big one that I was in the middle of was the transition from Netscape to Mozilla, which is not a perfect analogy but there are a lot of similarities and that just turned out marvelously well. And then obviously Linux has been a huge transformative force in the industry in the last 10 years, and both Linux as an open source project and Red Hat as a business have been spectacular. So we live in a world now where open source now, unlike 10 or 15 years ago, is mainstream, it’s widely accepted, it’s widely adopted, it’s trusted, enterprises are willing to bet on it, hardware companies are willing to bet on it, and chip companies build it into their plants from day one. So I think we have a real opportunity to have something really special happen.

  Meg, in looking back to before your time as CEO when there was a plan to have webOS on printers and all the consumer PCs. Will there be any changes to those plans?
  

  Whitman: I think we’ve got to walk before we run here. And let’s see what form webOS takes. In 2012 as you know we’re bringing two Windows 8 tablets to the market, we’re excited about that, we’re going to be working with them [Microsoft] constructively, but there may be an opportunity in 2013 to think of a different device, maybe come back to tablets. Let’s just see how it goes, but obviously HP would be one of the likely suspect hardware manufacturers for webOS.

  So you’re not closing the door entirely to hardware down the road, just not right away?

  Whitman: In all likelihood, not in 2012. The 2012 road map is already done.

  One thing that comes to mind is that, based on our reporting, there may be headcount reductions in webOS at some point. Can you give us any clarity on that?

  Whitman: I can’t. We have released no numbers on that and the reason is we don’t know. I’d tell you if I knew, but we don’t know. We’ve got to get a business plan, a product road map, a business model that we think will work, and decide how we’re going to engage with other hardware manufacturers, how we’re going to engage the open source community and that will determine ultimately the types and numbers of people.

  ]]> http://allthingsd.com/20111209/hps-whitman-we-have-to-walk-before-we-can-run-with-webos/feed/ 0 http://allthingsd.com/20111207/three-months-after-bartzs-firing-its-hurry-up-and-wait-at-yahoo-a-big-honking-update/ http://allthingsd.com/20111207/three-months-after-bartzs-firing-its-hurry-up-and-wait-at-yahoo-a-big-honking-update/#comments Wed, 07 Dec 2011 17:43:12 +0000 Kara Swisher http://allthingsd.com/?p=150675

  “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.

  ]]> http://allthingsd.com/20111207/three-months-after-bartzs-firing-its-hurry-up-and-wait-at-yahoo-a-big-honking-update/feed/ 0