Here is some food for thought.

Take care,

Jay

New HP CEO will face challenges right away
Strong comepetiors and impatient investors will greet Hurd's replacement

New HP CEO will face challenges right away - Business - U.S. business - msnbc.com

By Gabriel Madway, updated 8/15/2010 12:36:30 PM ET

SAN FRANCISCO — The top job at Hewlett-Packard Co offers a singular opportunity at the helm of a powerful Silicon Valley icon — but comes with daunting challenges and high expectations.

Unlike in 2005, when Mark Hurd took over a bloated HP in disarray, whoever succeeds him as chief executive inherits a streamlined, smooth-running technology behemoth with investors clamoring for growth, not just another round of cost cuts.

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Hurd remade HP, transforming it from a stodgy printer and personal computer vendor into a diversified IT powerhouse, the largest technology company in the world on a revenue basis.

But with the chief brought down by what HP calls expense account abuse, speculation is mounting as to whether the company will bring in a veteran with a steady hand at the helm, or a risk-taker to ignite the growth Wall Street is clamoring for.

Investors are clear: as interim CEO Cathie Lesjak said, what is needed is someone to "take us to the next level."

"Growth is arguably way harder than what Hurd did," said Robert W. Baird analyst Jayson Noland. "Investors will say you can't be a cost-cutter forever. We want to see organic growth."

The flip side of pursuing growth is collecting enemies. HP's competitive landscape has transformed, with powerful new rivals seeking to encroach on its turf, from Cisco Systems Inc to Oracle Corp with their forays into servers. HP itself wants to **** heads with Apple Inc and Google Inc with its purchase of smartphone pioneers Palm Inc.

It's not just Wall Street scrutiny that the executive suite has to contend with. Analysts say rivals are keeping a close watch on the HP house, pondering ways to capitalize on the leadership vacuum — and any missteps a new CEO is likely to make.

"There's complications today that didn't exist five years ago, with Cisco and Oracle and smartphones and tablets," Noland said.

HP's sheer size and its diversity of business give it a unique profile. With roughly 300,000 employees and 77 million square feet of property around the world, it resembles a small nation more than a technology vendor.

Annual sales are expected to top $120 billion in 2010 — more than the gross domestic product of Belarus and Slovakia.

"It's like steering an oil tanker, you need a pretty significant amount of effort to go and change direction," said Needham & Co analyst Richard Kugele.

"You can't take away from what Hurd did, but to grow the top line you're going to need to do some big things, or a lot of little things," he said.

Whoever takes up the reins accepts responsibility for a company steeped in industry lore. The garage from which Bill Hewlett and Dave Packard started their $538 operation bears a plaque declaring it the birthplace of Silicon Valley.

To be sure, Hurd did oversee a period of solid growth. Sales increased 32 percent from fiscal 2005 through fiscal 2009, as the company absorbed major acquisitions such as services company Electronic Data Systems, software vendor Mercury Interactive, network equipment maker 3Com and smartphone outfit Palm.

But it was his focus on the bottom line that really shone through. In that same period, non-GAAP earnings per share soared nearly 140 percent, as Hurd cut costs and jobs.

Susquehanna Financial Group analyst Jeff Fidacaro said there is still some fat to be trimmed off HP's printing and PC groups. The restructuring Hurd began is only in the "seventh inning," he said.

But the Palm integration, where HP will look to take on Apple in the smartphone and tablet space, will also be a major challenge, he said.

Although Hurd did a great job resuscitating HP, Fidacaro said the company should look for a somewhat different set of skills in his successor.

"What this person needs to add to the equation is that visionary product innovation, as well as understanding how to integrate multiple divisions and driving organic growth," he said.

JPMorgan analyst Mark Moskowitz said fiscal discipline became ingrained in HP during Hurd's tenure. He also used the word "visionary" to describe what HP needs, someone who can make the company less reliant on PCs and printers.

The printing group made up around 20 percent of HP's sales last fiscal year, but roughly one-third of operating income.

"HP is a solid IT portfolio company that already has capable CEO-like managers heading its key business groups. The missing pieces are meaningful participation in consulting services, software and networking technologies," he wrote in a research note.