02/02/2012, 12:28 PM
This thread seems to concentrate on condemning Leo as the Fred-the-shred who ruined HP. Let me present the case with some historical data:
The company bearing the hp logo today is NOT the compant founded by Bill and Dave after the War. That company and its core business of Instrumentation and the highest quality and precision measuring and Electrical Reference devices was hived off as Agilent in the late Nineties.
The Computer equipment developed by HP grew from the Instrumentation controllers and scientific application minicomputers necessary to support the innovative range of superb equipment developed by the Hewlett Packard company. These computers ranged from small microcontrollers running interpretive code to minicomputers running HP's instantiation of Unix labeled HP/UX.
In the mid eighties, after IBM marketed the open architecture PC running MS-DOS, HP brought out its me-too PC clone and continued to compete as a small-time player in this field until the nineties.
During this time, there was a massive consolidation taking place in the Computer industry and to cut a long story short, HP swallowed Compaq who were still choking on having swallowed Digital (DEC). At this time, IBM had just ditched the Personal Printer and PC market, having floated off Lexmark and sold the PC Divison to Lenovo.
IBM's strategic reason for doing this was to correct its falling Gross Profit margins which had declined into the Teens from levels near 40% in the 70s. IBM having relied on organic growth ere then, now embarked on an acquisitive spree, growing its software portfolio and Services and Outsourcing offerings. IBM today is a 50%+ Gross Profit company.
Having changed course several times and having sacked Carly Fiorina and Mark Hurd (albeit for different reasons), both of whom believed they were building a Computer Company with a services arm (having bought EDS), the HP Board was looking enviously across at IBM and hired Leo to accelerate the transition to a HIGH MARGIN Services Company.
Having spent most of his time at SAP (which incedentally was formed by a group of renegade IBM'ers from the Sindelfingen Lab), Leo went about his job the only way he knew. Firstly, he had to separate the HIGH MARGIN High Pay division from the Low Margin business which was then paying the same Salary and Benefits as the High Margin Business. This was his imperative and MUST be Meg's imperative too if HP is to survive.
Let's examine the PSG which is a ~10% Margin business, still paying over the odds to retain the talent that it acquired from Compaq and Digital. This has be firewalled from the Services business to allow separate employment terms to be applied from the Services Business which pays Banker-esque Salary and Bonuses. However, what MUST be retained is the HP Umbrella which allows both divisions to benefit from the purchasing and sales synergy.
So, Where does the newly acquired Loss-making consumer product business fit into this picture? Apple survives in this marketplace by carefully engineering the marketplace, strip-teasing new functionality and style to sell its consumer products at >50% Gross Margin. The proof of this is blatantly obvious. Just compare the price of a Mac-anything with the price of a similarly spec'ed PC. It is twice the price.
Whether Leo fudged the figures or not is moot. The proof of this is that Meg has NOT reversed his decision but rather has ensured a soft landing by throwing some loose change at it.
Now you can question my credentials .... but if I presented these, I would have to charge you for it.