HP quashes investor unrest, looks to servers for salvation

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Shareholder meetings are almost boring affairs, but today, at the Computer History Museum in Mountain View, California, HP’s Board quietly prevailed in several intense battles, including the preservation of its very own membership. The overall message: Let's look forward to the future, and leave our checkered past behind.

HP's shareholder meeting seemed design to project stability.

There’s plenty the Board would no doubt like to put behind it, including six quarters of declining profit and revenue . Though HP isn't doing quite as badly as expected, sales of its bread-and-butter PCs, workstations, and printers, continue to fall. As a result, shareholders have agitated to oust two of HP’s Board members along with its outside auditing firm, Ernst & Young. And many continue to question the company’s 2011 acquisition of Autonomy, and a Department of Justice investigation isn’t helping. Meanwhile, back at the garage, HP is embroiled in a lawsuit with Oracle over server support.

Against this ragged backdrop, HP’s Board seemed extra-determined to project both sober responsibility and immense excitement. It made no mention of its declining businesses, instead pointing to new opportunities in IT and servers for the burgeoning big-data revolution. In addition, none of the controversial shareholder proposals prevailed.

Shareholder drama fizzles

The biggest flap concerned a campaign by CtW Investor Group to vote down two of HP’s current Board members. CtW blamed John H. Hammergren for his role in the extremely expensive Autonomy acquisition. It also targeted G. Kennedy Thompson for his role in maintaining the high non-audit fees paid to Ernst & Young, which it saw as a conflict of interest with the firm’s role as the company’s financial auditor. When the shareholders voted, however, each Board member received over 50 percent of the votes needed to stay on team HP, and the retention of Ernst & Young as HP’s outside auditor was favored by a very high margin of over 84 percent.

HP’s Board nevertheless seemed to indicate that there might be room for change, though clearly on its own terms. During the meeting's Q&A session, Board Director Ralph Whitworth responded to a shareholder by saying, “This Board is among the best I’ve seen, and every single Board member contributes in their own way and has a strong dynamic. Having said that, all Boards should evolve, especially one with the recent past that this one has had…. You can expect some evolution of the Board over the coming years, months, maybe.”

IT and servers could be HP’s new cash cow

At the meeting, Meg Whitman’s enthusiastic speech to shareholders underlined HP’s core strengths in engineering and innovation. The CEO noted the company had filed more than 1300 patents in 2012, the most for any company in Silicon Valley. Every CEO likes to show a chart with the lines moving upward, and Ms. Whitman did just that, showing a chart of HP’s strategy for recovery through 2016.

“2013 we think of as a fix and rebuild year,” she said, “where we’re focused on the great products and services that HP continues to deliver to its customers.”

Meg Whitman HP CEOHP
HP's Meg Whitman

As she looked to the future, Whitman trumpeted HP’s enterprise business. “What’s emerging is an entirely new style of IT driven by cloud, mobile, and big data. It’s also changing how end users engage with that technology.” She pointed to HP’s IT and server solutions as, perhaps, the company’s new bread and butter. “Only HP can provide solutions for the new style of IT. Our diverse portfolio sets us apart—device, hardware, software, and service from the enterprise to the consumer.”

No mention of PCs, printers, and tablets

Through all this happy talk, only that passing mention was made of HP’s struggling consumer products, even though Todd Bradley, the Executive Vice President of the Printing and Personal Systems Group, was sitting there with all the other execs. While Ms. Whitman bragged, “our product lineup is the best [we’ve had] in a decade,” the reality is that HP still lacks the tablet and smartphone solutions that would help it remain competitive at the consumer end, where all the big data starts.

Ms. Whitman recently stated HP's commitment to PCs. How that and other struggling businesses will fit into HP's future is a lingering question.

"I would not read anything into a lack of discussion on PCs and printers," said Stephen Baker, Vice President for Industry Analysis at the NPD Group. “HP would want to accentuate the positive of the recent past, and focus on the opportunities in the future. Those categories don’t necessarily represent a shining example of future earnings potential for HP.”

Weak links in HP's food chain

Consumer devices may be weak links in HP’s food chain, but experts clearly feel they will remain nonetheless. “HP has maintained that they are in the client business for the long term. I think that right now, they are focused on building out a client strategy that’s broader than Microsoft OS based PC’s. This includes Android tablets, and Chrome-based PC’s. We believe HP wants to hedge its bets in the client space,” said Crawford Del Prete, Chief Research Officer at IDC.

By the end of the shareholder meeting, HP had succeeded in maintaining the status quo, while hinting at possibility for change. We are all waiting to see whether it’ll come soon enough.

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