commentary Walter Hewlett was right.
Walter Hewlett, you may remember, was the low-key, cello-playing scion of the Hewlett family who fought HP's then-CEO, Carly Fiorina, over her planned $25 billion merger with Compaq, which was announced 10 years ago next month.
Hewlett's point was simple: Just maybe it's a really bad idea to double down on a low-margin business like PCs.
Of course, we all know what happened. Hewlett's opposition was no match for the publicity-savvy Fiorina and her team of brass-knuckled marketers, who seemed a better fit for politics than the high-tech industry. (Which explains Carly's second career as the Republican loser in the race for one of California's seats in the U.S. Senate.) Hewlett folded his cards, went back to his quiet life, and Fiorina got fired three years after the merger because she was better at selling an idea than running a really, really big company.
Nowof the PC business.
My old colleague, Peter Burrows, wrote a scathing book about the merger scrap called "Backfire," and now he looks downright prescient. (Here's a link to the book on Amazon. Feel free to buy a copy, Pete's going to have to put his kids through college in a few years). I point this out because Burrows, like Hewlett, took a pounding from Fiorina and her minions because of what he had to say about the merger. And like Hewlett he was right.
But even after Fiorina got canned, her apologists stuck to their guns. Her ideas were sound, you see, but her execution admittedly lacked. Then HP's board brought in Mark Hurd, who executed with the ferocity of Patton relieving the troops at Bastogne. He cut, cut, cut. He cut R&D. He put workers on unpaid furloughs, he tried to automate consulting services, and Wall Street loved him. Just look, they said, HP dominates store shelves at Best Buy. It's No. 1 in PC sales! It's the biggest computing company on the planet!
ZDNet: Six reasons why HP's IBM moment will prove elusive
Fiorina book: HP board was 'dysfunctional'
Walter Hewlett speaks out
HP to buy Compaq for $25 billion
Then Hurd got fired, generally because he managed his personal behavior with the ineptitude that Fiorina had applied to managing the company. It's a funny thing with these HP CEOs--they have a habit of self-destructing. That said, if you think Hurd merely inherited Fiorina's business model and didn't really believe in it, guess again: He was the guy who agreed to buy Palm for $1.2 billion, apparently for the thrill of competing for the fifth position in the mobile operating system stakes. That was just a few months before he got canned.
Now Leo Apotheker, the latest CEO, has quite a mess on his hands: A company without focus dominating a market that isn't what it used to be. He wants out; sell the PC business, dump the products based on Palm's WebOS, and figure out if there's anything that can be done with the mobile OS (hint: don't bet on it). Seems like he wants to create IBM West. Nice idea, but it's a doozy of a challenge, as Larry Dignan at our sister site ZDNet points out.
It bears repeating: Just maybe, doubling down on a low-margin business that even 10 years ago looked like a tough place to make a profit was a bad idea. The thinking behind Fiorina's plan was that HP needed to achieve some sort of massive scale in order to make its PC business work. Voodoo economics, as the elder Bush once said? Sure sounded like it. Problem is, having a big position in such a tough market makes you vulnerable to cost-cutters and innovators. The margin for error is incredibly thin. You never know when something new is going to come along and disrupt your business. HP, meet the iPad. It's your official disruptor.
That was Hewlett's point. Why would you spend billions to get more of a risky market? Today, Oracle and IBM have 45 percent and 20 percent operating margins, according to The Wall Street Journal. HP has an 11 percent margin, dragged down by the 6 percent margin of its PC business. Turns out the "dilettante," as many called Hewlett, had a better understanding of the dynamics of the computer industry than the savvy executives working for Fiorina.
So what was that last decade at HP all about then? Beats me. Maybe it was about making mistakes. Maybe it was about a big company flailing as smaller companies innovated around it. Whatever it was, it was a terrible waste.