Whitworth, the head of Relational Investors LLC, has more skin in the game from a financial perspective than any other HP director. He owns about 17 million HP shares, worth about $800 million.

Whitworth says the company’s board will be recruiting a new chairman and at least two other directors to replace G. Kennedy Thompson and John Hammergren, both of whom resigned today. Ray Lane relinquished HP’s chairmanship, but will remain on the board.

The shake-up follows a closely watched proxy vote last month in which Lane, Hammergren and Thompson were targeted by unhappy shareholders. All three received only a thin majority of votes in favor of their retaining their seats.

Here’s Whitworth’s memo:

Why I Believe in HP’s Turnaround

HP today announced important changes to its board of directors. Ray Lane has decided to step down as chairman, and he will continue to serve as a director. John Hammergren and Ken Thompson have decided to leave the board, and both directors will continue to serve until the May board meeting. Lastly, I will be serving as chairman of the board, on an interim basis, while a search is conducted for a new chairman.

Each one of our directors considered the results of our recent shareholder meeting and made the personal decision to do what they felt was best for HP. As I have said many times, this board is among the best with which I’ve worked. Today’s announcement is a testament to our chairman’s and departing board members’ statesmanship and sterling professional standards. They, like all of us, are passionate about moving beyond the challenges of the past few years so we can focus solely on supporting the HP team as Meg leads us through this Herculean turnaround.

In the coming months you will see further evolution of our board of directors. We will recruit a world-class chairman to take my place as soon a possible, and we also hope to recruit at least two other outstanding directors before the end of this year. While sooner is better, rest assured we will not allow the rush of time to compromise our focus on recruiting the best of the best.

The firm that I represent, Relational Investors, owns roughly $800 million worth of HP’s stock. So, I can assure you that my interests are completely aligned with those of our shareholders. Besides its enviable industry position and unbelievable products and product pipeline, let me tell you why I believe in this company. It comes down to two things—people and leadership.

I have had an opportunity to spend a fair amount of time with people across HP, including speaking with the top 1,100 leaders at their recent leadership meeting. I walk away from every interaction more confident about this company’s future. There is a palpable energy and excitement at every level of the company to get our business turned around. I’ve worked on many, and led a few, similar efforts in my 28-year career, and I can tell you this: one does not find the telltale “green shoots” in financial metrics, graphs and charts, but rather in the eyes, faces, words and actions of people. All turnarounds start and end with people, and I see green shoots every where I turn at HP—it is happening as we speak, and I guarantee you it will be the most satisfying thing in each of our careers to be here, deeply involved, as it unfolds.

Leadership is what turns a group of great people with great energy and ideas into a team. Some say it’s a gift, and some say it’s a skill, but I think it’s both, and hands down Meg Whitman is among the most gifted and skilled business leaders in the world today. Her enthusiasm and energy is contagious and she has brought us all together as a team to tackle one of the greatest business challenges in the history of industry. I have dealt with a lot of CEOs in my career. That’s what I do in my “day job,” but I can say I have not had the opportunity or privilege to work with one as gifted and skilled as Meg Whitman. Her track record is the proof, and she is building on it here at HP, where working out of her cubical in Palo Alto she has assembled a world-class leadership team. It’s clear to me that they are committed to hard work, unyielding business ethics, knowing the details and shaping the strategy. That said, their ability to inspire the HP team to rally behind a shared vision has, more than anything else, made me a believer.

So, on behalf of the board, let me thank our team members for all of their work to date and say that we are 100 percent committed to supporting Meg and their efforts to turn around HP and restore it to its rightful place at the pinnacle of global business.

Two other HP directors, John Hammergren and G. Kennedy Thompson, will resign.

Lane is a former president of Oracle and is still a managing partner at the legendary venture capital firm Kleiner Perkins Caufield & Byers. He joined HP’s board in late 2010 not long after Léo Apotheker became CEO, first as non-executive chairman. He then became executive chairman after the Sept. 2011 shakeup in which Apotheker was fired and then-director Meg Whitman was named CEO.

Whitworth is the activist investor who took a board seat in November of 2011 after buying up more than 17 million HP shares. Whitworth will become chairman of the Finance and Investment Committee, replacing Hammergren.

The story was first reported by The Wall Street Journal. HP spokesman Michael Thacker confirmed the report to AllThingsD via email.

Lane, Hammergren and Thompson had all been targeted by unhappy shareholders seeking to unseat them in a proxy vote at HP’s shareholder meeting in San Jose, Calif., last month because of Lane’s involvement with HP’s $11 billion acquisition of the British software firm Autonomy. Lane survived the vote — nearly 59 percent of shareholders voted in favor of his retaining a board seat — but according to The Journal he was uneasy with the margin and chose to leave the chairmanship.

At the shareholder meeting, Hammergren received less than 54 percent of yes votes. Thompson received about 55 percent.

Thompson had been chairman of the board’s audit committee. Director Rajiv Gupta was named its new head. Director Gary M. Reiner will replace Gupta as chairman of the Nominating and Governance Committee.

A source familiar with the company’s plans says the process of recruiting three or four new directors, including an outside, non-executive chairman, is just getting underway and will likely take a few months.

HP just sent a press release on all this:

HP Announces Changes to Board of Directors

Raymond J. Lane steps down as chairman, remains a director Ralph V. Whitworth becomes interim chairman G. Kennedy Thompson and John H. Hammergren to leave board

PALO ALTO, Calif., April 4, 2013 — HP today announced changes to its board of directors. Raymond J. Lane has decided to step down as chairman of the board, to be replaced on an interim basis by Ralph V. Whitworth. The board is commencing a search for a permanent nonexecutive board chairman.

In addition, John H. Hammergren and G. Kennedy Thompson, after eight and seven years of service to HP stockholders, respectively, have decided to leave the board. Both directors will continue to serve until the May board meeting. The board is commencing a search for two or more new independent directors.

“After reflecting on the stockholder vote last month, I’ve decided to step down as executive chairman to reduce any distraction from HP’s ongoing turnaround,” said Lane. “Since I joined HP’s board a little over two years ago, I’ve been committed to board evolution to ensure our turnaround and future success. I’m proud of the board we’ve built and the progress we’ve made to date in restoring the company. I will continue to serve HP as a director and help finish the job.”

“Ray, John and Ken are terrific leaders, and they’re passionate about doing the right thing for HP,” said Whitworth. “From here we will continue to recruit outstanding directors, strengthen our governance and do the best we can—the best we know how—for stockholders. Meg is leading a Herculean turnaround, so most of all, we must build and maintain the best possible leadership structure for Meg and HP’s entire team to succeed.”

“Ray, John and Ken have invested a part of themselves in HP,” said Meg Whitman, HP president and chief executive officer. “Their leadership is reflected in the early success we’ve had turning the company around. I’m grateful that Ray will continue to serve, and I wish John and Ken the very best. I also appreciate Ralph’s willingness to increase his responsibilities during this transition.”

With Lane stepping down as executive chairman, the role of lead independent director, currently held by Rajiv L. Gupta, is no longer necessary and will be eliminated. Gupta will remain on the board and will replace Thompson as chairman of the Audit Committee.

Director Marc Andreessen got a 69.77 percent yes vote. John Hammergren had the smallest margin, receiving a vote of 53.91 percent in favor of his remaining on the board. Chairman Ray Lane got 58.88 percent of yes votes. G. Kennedy Thompson received a 55.15 percent vote in favor of his remaining on the board.

As proxy votes go this is about as close as you can come without actually removing a director. If nothing else, it’s hard for HP’s board not to have received the message loud and clear that shareholders were sending about the Autonomy deal and other difficulties the company has faced.

Here are some highlights from the day’s events.

1:59 pm: So it’s nearly 2 pm here in Mountain View, Calif., and we’re waiting for HP’s shareholder meeting to get under way.

Still waiting. The light FM jazz just stopped playing and now the audience is quiet. Aaaand just like that, onstage there’s Meg Whitman, Ray Lane, CFO Cathie Lesjak, chief legal counsel John Schultz and I think Rajiv Gupta from the board of directors.

Actually it’s not Rajiv Gupta, but a deputy general counsel whose name I don’t know.

John Schultz is speaking and is asking shareholders to observe meeting rules. He’s talking about the three shareholder proposals. Those who wish to speak in support or against the proposals can do so for only about five minutes.

More formalities to get the meeting going. A quorum is declared present. And the meeting can officially get started.

Now the slate of directors is up. All 11 directors are up for reelection to the board.

The second order of business is to re-appoint Ernst and Young as HP’s auditor. There are some proxy firms and other shareholder groups that are advising against that, in part because they blame Ernst and Young for failing to foresee some of the mess that was the Autonomy acquisition.

Other items of business is the say on pay proposal, a stock compensation plan and the formation of a human rights committee.

A shareholder is now speaking in favor of the human rights proposal. It deals with how HP does business in China and other countries with oppressive political regimes.

Schultz is speaking, and says that the creation of another committee to oversee human rights issues isn’t in the business of shareholders.

Another human rights proposal is up, submitted by a set of religious groups. A reverence whose name I didn’t quite catch is now speaking about it. “We have noted HP’s policies to human rights and related to supply chain and equal opportunity.”

2:20 pm: I’m paraphrasing what he says: He’s speaking on behalf of a proposal that would require HP to report in more detail on supply chain issues, making sure that workers employed by suppliers are protected. HP reports on a lot of this stuff already, but he’s pushing for a lot more detail.

Often, he says, confidentiality rules prevent HP from disclosing exactly how it evaluates its human rights policies with suppliers.

Schultz is speaking again and says the company opposes the proposal.

Now another shareholder proposal, this one about retirement plans.

Schultz is speaking again, opposing the latest proposal. And getting the voting under way.

2:32 pm: Okay, CEO Meg Whitman is speaking. Her remarks are starting with a video.

Meg again: “Most of you know that I’ve been CEO for 18 months. I’ve come to love this company.”

“I’ve now met with 300 or 400 customers around the globe, and they tell me they want HP to win.”

“Some of our customers have operations in 150 or 160 countries, and they want a partner that can match them every step of the way.”

Now on to innovation. “Did you know that HP was the top of the list for patents obtained in 2012 in Silicon Valley, and No. 50 worldwide.”

“But we have to do more, better, faster.”

“Third, I’ve found that HP has tremendous foundational assets, and talented and committed employees. And lastly despite what you may have read, we’re on a solid financial footing.”

“The biggest thing I’ve learned in the last year, is that together we truly make it matter.”

“There is still room for improvement. Fiscal 2012 results were not where they needed to be.”

Whitman: Partners are crucial to our future and we need to embrace them like never before.

Whitman is now revisiting the plan she laid out at the analysts meeting last year.

Whitman: The good news is, we said what we said we would do in 2012. We took action, and took our medicine, and met our guidance.

2:40 pm: Whitman: We expect 2014 will be characterized by recovery and expansion.

2:41 pm: In 2015 we expect you’ll see a rapid acceleration of growth and innovation.

Whitman is now reiterating the financial results.

Whitman: Net debt position has improved to $4.7 billion. But we’re not done. We have a long way to go.

First is creating solid product roadmaps that change how IT is designed and built.

We are reigniting the powerhouse of HP, which is the channel.

Whitman: Why I’m so confident about our strategy: We are living in a period of enormous change. Big shifts in how technology is consumed, used and paid for.

Whitman: It feels like a bigger change than what I saw at eBay.

Whitman: We will succeed because only HP can provide the solutions for the new style of IT. We are the only company that can bring our customers devices, services, software all at once.

2:48 pm: Whitman is closing her remarks.

It has essentially been a repeat of the same speech she’s been giving since HP reported its most recent quarter.

Whitman is closing with some nice praise of HP employees, who “continue to innovate through thick and thin.” She’s now wrapped up.

Time for a Q and A with the shareholders. I see about seven people queuing up to the mics from where I’m sitting.

A question about the data center business. Now about 15 people lining up for questions.

The questioner opines: Over the last two or three years I’ve lost lost half the value of my HP shares.

Whitman: One of the question you’re asking is if you’re better off with a vertical stack versus a commitment to open standards. One of the strengths of this company is the hardware business and the commitment to open standards and open architecture.

Whitman: Now she’s talking about Moonshot, the tiny servers using Atom or ARM chips and which use less power, and take up a lot less space. It’s disruptive innovation, she says.

Whitman is now talking about the 3Par storage business, which tends to simplify enterprise storage.

Whitman: We are actually sold out of our mid-tier storage product. We haven’t been sold out of a product in quite a long time.

Whitman: We are also the leader in software defined networking.

Question: What is the board’s thinking with regard to nominating an independent chairman?

Whitman: I came to HP at a difficult time. My view about the board is that they are helping to turn HP around.

Whitman: This group is helping me lead the transition. Once you decide how you’re going to run your company, you have to get everyone marching in the same direction.

Another question: Change to Win is up. Bill Patterson is speaking. “A strong opposition vote will be delivered to several directors who were involved in overseeing the Autonomy acquisition. In the event that some directors don’t receive a majority vote, the board should comment on that and what it intends to do going forward.”

3:02 pm: Patterson is still speaking. These shareholder rights are of limited value that the company can demonstrate that it has active independent directors. Will the board comment in the event of a strong opposition vote?

Meg just called on director Ralph Whitworth, the activist investor, who owns a lot of shares. He says that he bought the shares and approached the company. He offered himself as a director and Meg and Chairman Ray Lane were up for it. “You can expect some evolution of the board in the coming weeks or months.”

3:06 pm: Whitworth: I hope you will respect the results today and work with us to make this company stronger and more valuable.

More questions. SEIU union trust, a pension fund. Can you confirm that Whitworth has been appointed to a special committee to investigate the Autonomy acquisition. There’s a concern that directors who were involved with that deal not be on that committee.

John Schultz confirms a special committee has been formed. Whitworth, Gary Reiner and G. Kennedy Thompson are on it.

Schultz: The independence of this committee is passed on by a court of law. We believe the committee has the right scope of charter, and the members are the right ones in place consistent with the law.

The questioner is expressing “grave concern” that Thompson should not be on the committee.

A former HP employee, one who dates back to what he calls “the good old days,” would like HP to celebrate its 75 anniversary. Lots of applause.

Whitman: We have an employee committee on that.

Another question. Seven more people in the line. Latest questioner asking about human rights, surveillance in less developed countries. “Never ever admit that David Packard is most admired for cutting 10 percent off expenses, and cutting his own compensation.”

The questioner is suggesting the elimination of health insurance brokers somewhere in the employee benefit process.

Now 10 more people waiting in line to ask questions.

The “question” is more or less turning into a political diatribe about health care policy. Whitman is cutting her off and asking her to get to the point.

3:15 pm: She’s basically trying to get Whitman to support a single payer health insurance scheme.

Another question from a Presbyterian Minister. Something about never voting against the State of Israel. However, he says, HP is selling its products in a way that support the “occupation” of Palestine. He’s asking for transparency, which he says is lacking in the Proxy statement on how products are being used.

Whitman is pointing out an HP exec who is responsible for responses to questions like this, to address his concerns.

Another question from a shareholder and retiree. “My portfolio has taken a dramatic fall. Regardless of this, I marked a ballot to support everything the board recommends.” He’d now like to read something published in 1976.

He’s asking Whitman to stand up for the old HP Way. “It turns out its really hard to kill founder DNA. … We are at our core an engineering company.”

Question from a representative for the AFL-CIO fund. Can you address how the board expects the biggest vote against an S&P auditor in a long time? It’s a question about the proposal to dump Ernst and Young as an auditor.

Whitman: When we do an outside enterprise deal, we have to have someone certify the financials. To have someone other than our auditor do it, it’s not a good use of your money. It would be duplicative to have someone else do it.

Question: What other boards does Whitman serve on? How do you justify the time spent on other boards.

Whitman: After I lost the governor’s race [in California] I was asked to go on a lot of boards and I did. I have been reducing my committments to other boards. She used to be on the board of ZipCar and is now off that as the company has been sold. The remaining corporate board I sit on is Proctor and Gamble and that is good for HP. It’s good to see another big company struggling.

The same questioner is a fan of his HP 20S calculator. “It’s an example of the HP Way. I’d like to see that return.”

Whitman: I came to set this company up for the next 75 years. This company is an icon of American business. We are important around the globe.

One last question and then it’s time to announce the results of the vote.

Last question is from a guy who lived across the street from David Packard. Apparently,he’d like to sell a company to HP. Whitman is laughing.

Whitman is referring him to CFO Cathie Lesjak.

Proxy vote time.

This is the moment of truth. A few stragglers are still voting.

3:29 pm: Polls are closed.

Chairman Ray Lane is announcing the results based on the preliminary tally. Directors first. All have received at least 50 percent. All 11 directors have survived.

3:31 pm: And Ernst and Young has been renominated as HP’s auditor.

The directors and Ernst and Young were the two big items. We don’t yet know what the percentages were on the various directors who had been targeted by ISS, Glass Lewis, Calpers and others.

What’s left is the proposals on human rights committees. Less than 4 percent voted in favor.

It’s pretty much going as the company recommended. Patterson from Change to Win is asking for the percentages on the director votes.

Lane is declaring the business of the meeting concluded. That ends the meeting.

And we’re done!

CEO Meg Whitman will make a presentation, essentially reiterating her plan to rebuild and repair HP’s foundations in 2013, and to nudge it back over the line to revenue and profit growth in 2014 and beyond. Analysts have generally turned cautiously optimistic toward HP, especially since its last quarterly earnings report.

Numerous shareholders are seeking to rattle both HP management and its board of directors by opposing the reelection of as many as five of those directors. One powerful proxy advisory firm, Institutional Shareholder Services, is urging shareholders to vote against Chairman Ray Lane and directors John Hammergren and G. Kennedy Thompson. Another proxy firm, Glass Lewis, is opposing four directors, including Hammergren and Thompson, as well as Marc Andreessen and Rajiv Gupta.

Calpers, the powerful California pension fund, has vowed to vote against all five: Lane, Andreessen, Hammergren, Thompson and Gupta, and will also vote against ratifying Ernst & Young as HP’s auditor.

The most likely outcome is that the directors under fire will survive the proxy vote, though of the five directors catching the most heat, Hammergren and Thompson are generally seen as the most vulnerable.

Of course, the day of HP’s shareholder meeting wouldn’t be complete without some fireworks from Mike Lynch, the former CEO of Autonomy, the British software company for which HP paid $11 billion in 2011, only to write its value down about half a year later.

In an open letter to HP shareholders, Lynch reiterated complaints, and asked some interesting questions about HP’s accusations that he and his lieutenants essentially inflated Autonomy’s value before HP acquired it. The text is below:

Open letter from Mike Lynch to the shareholders of Hewlett-Packard

20 March 2013

Today HP will hold its annual shareholder meeting. This meeting provides a moment of accountability for HP’s Board of Directors to all its stakeholders, and is an appropriate time for the Board to address material questions.

A significant issue for HP’s stakeholders is the allegations HP has made against the former management team of Autonomy in relation to the acquisition of that company, and the related impairment charge of $8.8 billion taken against shareholder funds. As a member of the former management team of Autonomy I have a shared interest with the shareholders of HP (of which I am not one) in getting to the bottom of those allegations, understanding exactly what happened within HP related to this situation and resolving it as soon as possible.

We therefore put forward some questions that we believe HP’s Board of Directors needs to answer at the shareholder meeting:

1. Can the Board provide details and evidence of the allegations it has made against the former management team of Autonomy to shareholders and to the people it has accused, so that everyone can understand the allegations that are being made and how it relates to the decisions and statements the Board has made? Can the Board confirm when it first became aware of these specific allegations? Will the Board provide the report from PwC on which its allegations are based to the former Autonomy management team so that this issue can move toward resolution? Will the Board also make available the conclusions of the findings of the recently appointed committee investigating the circumstances of the acquisition?

2. How did HP calculate the impairment charge it has taken against Autonomy? Several qualified commentators, including a former Chief Accountant of the SEC, have questioned how the alleged irregularities in Autonomy’s accounting could generate such a large write-down. How much of the impairment charge was related to the operating performance of Autonomy post-acquisition?

3. Did HP approach the UK Takeover Panel at any stage in an attempt to rescind its offer to buy Autonomy before completion? If so what was the reason it gave and why was this material change of view not communicated to shareholders?

4. The former management of Autonomy began alerting Ms Whitman as early as December 2011 to significant problems with the integration of Autonomy into HP that were negatively impacting its performance. When did Ms Whitman acknowledge that Autonomy was not performing against expectations? Why was this not communicated to shareholders at that time?

5. Will HP commit to behaving in a transparent manner in providing information about these allegations and the legal processes that have been set in motion? This includes not pre-empting announcements by regulatory authorities and not waiting long periods to disclose information.

We continue to reject the allegations made against us by HP and believe it is in the interests of all parties that these questions be addressed directly by the Board so this issue can be resolved as swiftly as possible. HP has acted in an aggressive and unusual manner throughout this episode, making highly damaging public accusations without providing any supporting evidence, either to the public or to the people they have accused.

As we have said before, we believe the problem with the Autonomy acquisition by HP lies in the mismanagement of that business by HP under its ownership, making it impossible for Autonomy to deliver on HP’s expectations. Autonomy’s accounts were fully audited by Deloitte throughout the period in question and Deloitte has confirmed that it conducted its audit work in full compliance with regulation and professional standards. We refuse to be a scapegoat for HP’s own failings.

Dr Mike Lynch

Institutional Shareholder Services, which advises big investors how to vote in corporate elections, criticized Mr. Lane and HP’s two longest serving directors, John Hammergren and G. Kennedy Thompson, for how the big computer maker handled the acquisition, which was approved on Mr. Lane’s watch and then largely written off.

Read the rest of this post on the original site »

And if you haven’t here’s a rundown: A collection of pension funds led by the investment arm of the labor federation Change to Win — a.k.a. CtW — has decided to start a push to eject three HP directors who are standing for reelection at a meeting next month. The three in the CtW’s sights are Chairman Ray Lane (pictured), John Hammergren and G. Kennedy Thompson.

CtW owns about 7.8 million shares, which amounts to less than one half of 1 percent of HP shares outstanding, so the chances of the group succeeding are pretty small. But the larger group behind the effort is said to own about 135 million shares, or nearly 7 percent of HP’s equity. That’s enough proxy oomph to get HP’s attention, so the company is taking the effort seriously; a delegation from the board, including Lane, was to meet with representatives of the group today.

Below is the group’s original letter outlining certain problems and demands for changes that it wants from HP. Among them is a request for an “independent special master” who would be appointed to investigate the circumstances leading up to the $11 billion acquisition of the British software firm Autonomy. That deal, you’ll recall, famously went south when HP announced that Autonomy assets would account for about $5.5 billion out of a total $8 billion write-down late last year.

The group also demanded that HP sever ties with its auditing firm, Ernst and Young. Specifically, it complains that HP has paid the firm too much in fees unrelated to auditing work, while those same fees at Dell and Apple have been falling, thus giving the appearance of a conflict of interest between different arms of that firm. It goes on to question other factors, such as whether or not Enrst and Young was paying enough attention to the acquisition of EDS, which itself was the target of another $8 billion HP write-down earlier in 2012: “The Audit Committee’s willingness to allow Ernst & Young to perform multiple and conflicting roles for HP severely undermines shareholder confidence in the ability of the Committee as currently constituted to steer an appropriate course in the future. As a result we believe that this relationship must end now, and that HP should immediately begin the process of finding a new external auditor,” the letter reads in part.

Here’s the letter from CtW in full.

CtW HP Letter by Arik Hesseldahl

Chairman Ray Lane and three fellow board members plan to meet with about 20 of the computer maker’s big investors Monday in hopes of heading off a campaign to unseat Mr. Lane and two other directors.

Read the rest of this post on the original site »

Today, for some reason, he decided to reach out to Bloomberg News with an emailed statement. The point? Apparently to remind the world that he wasn’t the only one making decisions at the time regarding the deal that ultimately cost him his job.

According to the Bloomberg report, Apotheker says that “no single CEO is ever able to make a decision on a major acquisition in isolation, particularly at a company as large as HP — and certainly not without the full support of the chairman of the board.” He then turns his guns on Chairman Ray Lane, without mentioning him by name: “The HP board, led by its chairman, met many times to review the acquisition and unanimously supported the deal, as well as the underlying strategic objective to bolster HP’s market presence in enterprise data.”

Indeed, he has a point. It’s also worth remembering that the board at the time included HP’s current CEO, Meg Whitman, who took over the job in the wake of Apotheker’s ouster less than a month after the Autonomy deal was announced.

There was more to call Apotheker’s competence into question that day — Aug. 18, 2011 — that contributed toward his stint as CEO being cut short. HP fell short on earnings, and he also launched the ill-fated effort to spin off the PC unit as a separate company, and killed the Palm handheld and tablet unit acquired only a year earlier by his predecessor Mark Hurd.

Clearly, Apotheker doesn’t like getting all the blame for the deal. Lane was certainly at the table, and lent his support for it. And, for that matter, so was Whitman.

Consider yourself reminded.

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

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

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

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

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

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

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

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

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

HP claimed victory of its own, in a statement:

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

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

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

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

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

HP v Oracle – Amended Cross Complaint

0077a 2011121 Hp Cmc Stmnt Unredacted

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.

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

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

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

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

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

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

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

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

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

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

Here are a few other highlights from the press release that will likely be called out in more detail on the call:

Personal Systems Group: This is the PC business that was briefly considered for sale or spinoff earlier in the year, before HP reconsidered. Revenue fell by 2 percent over the year-ago period, and operating margins were 5.7 percent. Business PC sales were up 5 percent, while consumer sales declined 9 percent. Total units shipped were up by 2 percent, with desktop machines growing by 5 percent and notebooks by 1 percent.

Printing: Revenue declined 10 percent year on year and operating margins were 12.8 percent. Commercial sales were up 4 percent. Consumer sales were down 8 percent.

Services: Revenue was $9.3 billion, up 2 percent year on year, with operating margins of 12.8 percent.

Enterprise servers, storage and networking: Sales declined 4 percent and operating margins were 13 percent. Networking sales grew 5 percent. Industry standard servers were down 4 percent, while Business Critical Servers were down a whopping 23 percent, in no small part because of the uncertainty brought on by Oracle’s decision not to develop software for Intel’s Itanium chip, a decision that is the subject of a lawsuit between HP and Oracle.

Software: Sales grew 28 percent and operating margins were 27.7 percent. Licenses and services grew 33 percent and 36 percent, respectively.

Cash flow: HP generated $2.4 billion in cash flow from operations in the quarter.

The conference call is set to begin at 2 pm PT/5 pm ET. I’ll be dialed in, and will fill you in as it happens.

2:01 pm: We’re a minute or two from the call getting underway. There’s what sounds like some Yanni music playing. And now some weird electronic thing.

Soon after the results were released, HP shares started to go higher in after-hours trading. But now, as I look, they’re headed down again.

And now the call is getting underway. Operator is doing her setup.

Steve Fieler is now running through the boilerplate, forward-looking statements, etc.

He has, however, just said that CEO Meg Whitman will be on the call.

2:05 pm: Here’s Meg. “We need to get back to doing what we do really well. … When I took this role, we set three goals: Deliver Q4, complete the PSG analysis and get Autonomy off to a good start.”

“In the last month, we’ve had hundreds of leads pass between the two companies. We’ve combined the HP software business with Autonomy under Mike Lynch and reporting to me.”

“As I travel, the one question I keep getting is, ‘What is HP?’”

Meg: We’re in the software business to deliver value to our customers, not to transform HP.

2:08 pm: Now she’s talking about Project Moonshot as an example of “meaningful and exciting innovation,” and says to expect a boost in research and development spending in 2012.

Meg is reviewing 2011 to help people understand what was so difficult about 2011: We faced some challenges, some were in HP’s control; others were not.

First, we increased our investment, because there are levels where HP underinvested. This is why services revenue and margins came down.

We’ll also increase investments in IT systems and processes.

HP is a company known for execution. But we didn’t execute well in FY11. I’m a big believer in setting priorities.

We also confronted one-time issues like the Japan earthquake and the Thailand flooding. Finally, we had a CEO change, and many news cycles. Through this, we created confusion with many of our shareholders about what kind of company HP is.

Meg: Many of the FY11 headwinds are still with us. But we’re doing the hard work that will put the pieces in place for profitable growth in 2013.

No major acquisitions in 2012. We will be rebuilding our balance sheet.

2:15 pm: Here’s CFO Cathie Lesjak: Running through the numbers.

Gross margins were hit by the strong yen and difficulties with printer supplies.

2:20 pm: Interesting: Nine million Web-connected printers were shipped this quarter.

2:21 pm: We are seeing the macroeconomic slowdown impact industry-standard servers.

2:25 pm: The salesforce is ramping up to start selling Autonomy software in fiscal 2012.

Balance sheet: $8.1 billion in cash.

Channel inventories are a bit higher than we would like in some regions.

Outlook: Fiscal Q1 2012 and full year: We will be managing the business toward earnings performance. Here is some color and assumptions on revenue. The macro environment remains uncertain globally, particularly in Europe. Consumer is soft, and starting to see weakness in commercial spending. Business Critical Server will remain a headwind during the year.

We will continue to be focused on profitable revenue. First, the overall decline in revenue will impact margins at a company level. We are also seeing pricing pressure across the company at a transactional level.

We expect 83-86 cents non-GAAP in Q112. FY12, EPS of at least $4 on a non-GAAP basis.

Reiterating that statement Lesjak made a few minutes back: “The macro environment remains uncertain globally, and particularly in Europe. Consumer spending remains soft, and we have begun to see a slowdown in commercial spending. We expect these dynamics will lead to below-normal sequential revenue performance in Q1, and year-over-year revenue declines through 2012.”

2:31 pm: Time for Q&A. I missed the question, but it was about investments. Meg is answering about headwinds in all three regions. Thailand flooding will affect HP in Q1 and Q2 of 2012. We’re driving more organic innovation by boosting R&D. If we’re going to get out of the M&A business, we’re going to have to invest in R&D. We also have to invest in people who can deliver the products and services. Also expect an investment in sales force. Those are the three areas of investment.

2:32 pm: Lesjak: We think Thailand flooding problems on hard-drive availability starts to be alleviated after the first half of the year.

2:34 pm: Question from Katie Huberty at Morgan Stanley: Is the lack of revenue guidance to be more selective, or is it more a function of the visibility and disruptions you’re seeing? Also asking about places where HP can take share from others in 2012.

Whitman: The reason we’re not guiding to revenue: We want to manage the company to profitable growth. Our business-unit heads are focused on business mix. This company has always been focused on profitability. That is the reason we’re doing this. We’re going to report by segment, but no guidance on sales.

Lesjak on where HP can take share: Right now, our guidance is reflective of an uncertain economy. We think we can maintain or gain share in many segments.

2:36 pm: Question from Citigroup: Asking about the weaker environment in supplies. Is it a cyclical issue or a secular issue?

Whitman: I completely believe this is not a secular trend toward decline in printing. There is more information to print. In my view, this was all about correcting a channel problem. The slowdown in Q3 and Q4 was a surprise to us. What we know is that supplies is almost a perfect predictor of economic health in almost any region. I do not think this is a secular trend.

Question from Barclays about Industry Standard servers.

Whitman: We’re back to a more normal refresh cycle, but there’s going to be pressure because of the hard-drive supplies problem. Many companies who are building their own servers — like, say, Google — are calling us because they can’t get disk drives.

Whitman: The flooding in Thailand has been a personal tragedy. It remains pretty dynamic. I’ve been on the phone with heads of all four disk-drive partners, and they’re not sure when they’re going to be back up and running. We made strategic buys of drives. We will get more than our fair share. We were on this really fast. This is going to affect the industry pretty dramatically. There are going to be shortages in Q1 and Q2.

Lesjak: We have tried to capture this uncertainty in our EPS guidance. I think what’s going to be key for us is investment in innovation. What’s going to keep people from building their own servers is the kind of thing HP brings to the table.

Whitman: We’re excited about Project Moonshot, which will change the game in the industry.

Question from Toni Sacconaghi at Bernstein: You are placing more emphasis on the tougher macroeconomic environment. You seem to be saying you will be more affected than some other companies. Most companies are coming slightly below normal seasonality; you came in well below normal seasonality. Some simple benchmarking would suggest you are losing some share. Do you believe you are as competitive as you ought to be? Or was there damage to the brand?

Whitman: As you look at 2011, there were three buckets of problems. One-third was macroeconomic trends. Consumer was weak for us, and commercial segment was weak in Q3 and Q4. Other third was HP-specific. We were hurt in China from the Nivida recall and Intel recall, and the mid-August announcement hurt us in China more than in any other market. I had some customers tell us they thought we were getting out of hardware entirely. We didn’t perform as well as the industry.

The other third was the distraction factor. We just need to get back to putting our heads down and ending the drama here. Going forward, we’ve still got macroeconomic headwinds. I don’t think anyone knows what’s going to happen in Europe.

2:46 pm: Whitman: We’ve got work to do in each and every one of our businesses.

2:47 pm: A question on capital allocation, also from Toni at Bernstein. If you’re going to generate $8 billion to $10 billion in cash, you could return more in buybacks and still exit the year better than before. Why can’t you be more proscriptive on buybacks?

Lesjak: We’re always evaluating best options for cash for short and long term. In the midterm, we really want to build back our balance sheet. We have a lot of debt. We don’t want to get ahead of ourselves on this one.

2:49 pm: Keith Bachman at Bank of Montreal: How is HP thinking about revenue growth and margin implications as it goes through the investment cycle? Also about getting the services business back to where it needs to be.

Lesjak: Success in services will be measured in years versus quarters. At the same time we’re doing that, we have to review everything in the portfolio to make sure we’re offering the right services. This is a very big business. In 2011, we are making investments in tools and will accelerate them in 2012.

2:52 pm: Question from Scott Craig of Bank of America: You mentioned a long tail about services. Provide a little more color on what a long tail is. Also, when do you see the drops in business-critical servers?

Whitman: BCS is a business in decline. It’s a slow decline.

Lesjak just mentioned some DEC servers, Digital Equipment Corp., which HP acquired some years back. HP is still selling them and servicing them.

2:55 pm: Whitman: We may make some small acquisitions, but we’re not going to do any big acquisitions in 2012. This is a reset and rebuilding year.

One of the things I have been struck by is that we have a fantastic portfolio of assets. We just have to make them work harder.

2:56 pm: Question: What do you consider large?

Whitman: Sub-$500 million. We might get up to $1 billion, but I doubt it.

2:58 pm: Whitman talking about possible acquisitions again. There are a few assets that may be ready to move in 2012. There may be two or three we take a look at in the software space. If there is a great acquisition that is in the $1 billion range but we don’t want to pay too much for it. I have a history of using acquistions to grow companies, but we can’t continue to rely on them to grow acquisitions at HP.

3:01 pm: Last question: Shannon Cross of Cross Research. Asking about Autonomy and linearity during the quarter.

Whitman: I am really excited about the acquisition. It really positions HP well. It enables HP to manage unstructured information in a way that no one else does. Autonomy is running autonomously, but we have done a great job of integrating going to market. We have a clearinghouse that vets all the sales leads. This will enable Autonomy to grow a lot faster than it would have on its own.

3:04 pm: And we’re done.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

He’ll also get:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Autonomy Presentation 1 503341

Autonomy Presentation 2 503342

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read the rest of this post on the original site »

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

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

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

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

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

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

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

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

Raydefendsmeg by ahess247

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

Why no search at HP? by ahess247

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

Decisionpsc by ahess247

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

Ray Lane: Help surround or replace? by ahess247

Yesterday — right after she took over the reins at Hewlett-Packard — high-profile Silicon Valley tech exec Meg Whitman and Executive Chairman Ray Lane got on the phone with me to talk about her new gig.

In the interview, which took place just before her debut — well, re-debut with investors, since she ran eBay for a decade — Lane said he approached Whitman for the job sometime after she joined the board eight months ago, because he felt she had the kind of leadership that HP needed and was lacking under now-ousted CEO Leo Apotheker.

Message No. 1 from Whitman, who is very good at delivering messages: “I took this job, because HP really matters to Silicon Valley, to California, to this country and to the world.”

And: “This is an icon and the place where the initial spark to create Silicon Valley came from and I am resolved to restore it to its rightful place.”

And: “I have the skills to do that.” Lane concurred, noting that while Apotheker had focus on defining some of HP’s goals, he lacked the operational, people and communications skills Whitman has.

“Leo was very wise about figuring out what HP needed to do to add value,” said Lane. “But he did not have more important tools we needed, including operational excellence, people skills and communications skills.”

He added: “Meg has all those things … and when we looked around the board room, we realized we had what we needed right there.”

Now that is some fancy CEO talk, for sure, which is why Whitman will surely be the most interesting leader HP has had in a long time.

And the troubled tech giant has had a lot of leaders — seven CEOs since 1999.

Whitman says she is undaunted by those odds and will focus on several major issues at first.

Those include, in the order she put them in (of course, using definitive numbers):

1) Focusing on meeting Wall Street expectations for HP for the next quarter over the next 45 days. “We have made a commitment,” she said. “And we are going to do everything possible to keep it.”

2) Integrating HP’s $10 billion acquisition of Autonomy, which was made by Apotheker. “As you know from my time at eBay, I know a lot about unstructured data and it is a market where no one is a leader except Autonomy,” Whitman said.

3) Come to a decision about whether to spin off or keep its Personal Systems Group, which includes HP’s consumer PC business. “We will not sell,” said Lane firmly.

4) Getting a better feel for HP and its employees. “I have been on the board for eight months, but I really need to get in there and meet its people,” said Whitman. “That is perhaps the most important thing to get right.”

Whitman added that after leaving eBay and her loss in a run for governor of California, she said she found she wanted to get back in the tech game.

“She won that race,” joked Lane, who perhaps is hoping HP will, since it freed up Whitman for the job.

And while she said she enjoyed her short — and brutal — political life, Whitman said she was happy to be back.

“Business is my first love,” she said. “And this is a huge opportunity that I sensed I could do well at.”

Done. Now what?

Meg Whitman, former eBay CEO, is the new CEO and President of Hewlett-Packard. The move, which AllThingsD previously reported would happen today after the markets closed, is a dramatic appointment for the troubled Silicon Valley Internet giant.

Ray Lane, HP’s current non-executive, will become executive chairman.

Whitman, who is a well-known executive (and who is now once again the most high-profile and powerful woman executive in tech), will replace HP’s current Léo Apotheker, who has been ousted from the top job at the company.

Whitman, who is an experienced digital exec, has a daunting task before her, as HP seeks to right itself after a series of strategic gaffes, disappointing financial results and, perhaps worst of all, a stock that has dropped 47 percent in the 11 months since Apotheker has been in charge.

The board of HP, which has had its own series of blunders in recent years, is hoping Whitman can help turn that around, especially as its competitors — such as Oracle, IBM and others — increase the pressure.

Whitman herself will need a lot of help. She has had a successful career in the consumer Internet space, but has little experience in enterprise and hardware, which are at the heart of HP’s big businesses.

Among the most immediate issues to deal with: Coming up with a clear strategic plan; reevaluating Apotheker’s move to spin off its consumer PC business and shutter its webOS device development; reassuring rattled employees and restoring morale; and, most of all, calming disgruntled shareholders and getting the stock moving in an upward direction.

Other than that, Mrs. Whitman…

Here’s the official press release from HP:

HP Names Meg Whitman President and Chief Executive Officer

Ray Lane appointed executive chairman; Léo Apotheker steps down as president, chief executive officer and director

PALO ALTO, Calif., Sept. 22, 2011

HP today announced that its board of directors has appointed Meg Whitman as president and chief executive officer.

In addition, Ray Lane has moved from non-executive chairman to executive chairman of the board of directors, and the board intends to appoint a lead independent director promptly. These leadership appointments are effective immediately and follow the decision that Léo Apotheker step down as president and chief executive officer and resign as a director of the company.

“We are fortunate to have someone of Meg Whitman’s caliber and experience step up to lead HP,” said Lane. “We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead. Meg is a technology visionary with a proven track record of execution. She is a strong communicator who is customer focused with deep leadership capabilities. Furthermore, as a member of HP’s board of directors for the past eight months, Meg has a solid understanding of our products and markets.”

Whitman said, “I am honored and excited to lead HP. I believe HP matters –- it matters to Silicon Valley, California, the country and the world.”

Speaking on behalf of the board, Lane said, “We very much appreciate Léo’s efforts and his service to HP since his appointment last year. The board believes that the job of the HP CEO now requires additional attributes to successfully execute on the company’s strategy. Meg Whitman has the right operational and communication skills and leadership abilities to deliver improved execution and financial performance.”

Financial analyst conference call details

HP will host an audio webcast for financial analysts and stockholders to discuss today’s announcement. Details are below:

When: Sept. 22, 2 p.m. PT / 5 p.m. ET

At least that’s Wells Fargo analyst Jayson Maynard’s take on market rumors that suggest HP, in its current state of turmoil, is ripe for a hostile bid from its old rival.

“In our view, the likelihood of an HP acquisition in the near term is extremely low,” Maynard told clients in a research note. “We think there are other potential options that are more strategic, have less complexity, and smaller price tags. We made the comment a few weeks ago that we think Oracle looks at all possibilities, and as a result to never say ‘never’ given HP’s tumultuous situation and plan to break itself up into a smaller firm. That said, we think it will take HP at least a year or so to spin off or sell the PC business and deal with those implications. So even though Oracle could financially make a large move, we think the probability is remote.”

I’d say so, though the scenario becomes quite a bit more plausible if/when HP finally splits off its Personal Systems Group. While HP’s enterprise business would certainly give Oracle another hammer with which to smite IBM, the acrimony between the two companies would almost certainly make negotiations difficult. Then there’s the issue of what to do with HP’s printer business. And, of course, HP would be an expensive buy, even for Oracle.