Hewlett-Packard CEO Leo Apotheker was ousted from his position on Thursday and replaced by HP director and former eBay CEO Meg Whitman, less than a year after he took the job.
Rumors had swirled in recent days that HP's board was about to part ways with Apotheker, a former CEO of business software vendor SAP. Only a tiny amount of HP's business currently comes from software, a fact Apotheker sought to change in a strategy he laid out soon after joining the company in September 2010.
Apotheker came to HP at a turbulent time following the departure of its high-profile CEO, Mark Hurd, after a scandal involving his relationship with an HP contractor. Hurd ended up securing a post as co-president of HP rival Oracle.
The market did not react well to a number of announcements and moves Apotheker made, including the planned purchase of infrastructure software vendor Autonomy and talk of spinning off HP's PC division. This last topic sparked a major downturn in HP's stock price, which may have quickened Apotheker's removal.
Overall, the HP experience must have had an element of deja vu for Apotheker, given the trouble he experienced as sole CEO of Germany-based SAP.
A long-time SAP executive, Apotheker ultimately lasted less than a year in the top post there as well, and was replaced by insiders Jim Hagemann Snabe and Bill McDermott in February 2010 as SAP returned to the co-CEO format it had used in the past.
"I think that Apotheker came into something of a thankless job," said Charles King, president and principal analyst with Pund-IT. "It's difficult for any CEO to come into a company that is in turmoil, which HP clearly was after the ouster of Mark Hurd."
Still, moves such as the possible PC business spinoff "may simply have been too radical a surgery for the market to stand," King added.
Other big factors leading to the change in leadership were HP's missing its financial targets in three recent quarters and paying a lot of money to get deeper into the software business through acquisitions like Automony and Vertica without giving a clear strategy for the future, according to IDC analyst Crawford Del Prete.
"There was probably an underestimation on the company's part and on Leo's part ... about how difficult this transformation would be," Del Prete said. "They haven't been able to effectively communicate their strategy and vision."
"Investor confidence is a very difficult thing," he added. "When it starts to get eroded, it's very difficult for that person to get confidence back."
Beyond Wall Street, the idea also likely stirred up some concerns among HP's customer base, said analyst Ezra Gottheil, senior analyst at Technology Business Research.
"They are the largest PC vendor in the world, the most profitable after Apple," he said. "Talking about spinning that off without any resolution on it was a surprise. How would you as a customer have responded? I believe they are worried. They took a very large installed base and customer base, and they made them wonder."
There's also the question of whether such a move would fully serve as a way for HP to shed its image as a consumer company, according to King.
Much of HP's US$40 billion PC business "is pulled through enterprise deals," he said. "If it was spun off, it'd still be intimately connected to other HP sales and customer relationships. There's no way to separate it entirely, especially the part of HP services that deals with client deployment and management. In a way, it would make sense just to keep it, and keep rolling on."
"It may be the lowest-margin business in HP but it's still profitable," he added. "Letting it percolate in the background may be the smarter move."
Moreover, getting rid of its PC division could hurt HP's server business because the company depends on high-volume supply relationships with component makers, IDC's Del Prete said. It's likely to hurt the company's printer business because PCs help to cement good deals with retailers such as Best Buy that also sell HP printers.
Overall, it's still likely that Whitman will continue pushing HP to become more of an enterprise company, King said. "That's clearly where the profits are."
The choice of Whitman as CEO is a bit of a mixed bag, according to King.
"One one side, she's a known entity and she's obviously got significant experience in running a multi-billion dollar run rate company at eBay," he said.
However, Whitman has very little in her background that makes her a good match for a company of HP's size, nor does is she "deeply experienced in the enterprise IT space," he said.
Moreover, Whitman made an unsuccessful run for the governorship of California, but "has continued to discuss her political ambitions," King said.
Therefore, it's possible that Whitman will provide HP with some "star power" in the CEO's chair while the company board guides the broader strategy and sets about finding a more permanent CEO, according to King.
One first step for HP and Whitman could be to reevaluate the company's core PC and WebOS businesses and continue developing a strategy around software and the cloud. Another could be to provide a clear statement on the direction of HP without undermining existing businesses.
Apotheker mishandled the webOS software and hardware business, which was bought from Palm by former CEO Hurd, said Roger Kay, president of Endpoint Technologies Associates. HP has now killed its WebOS tablets and smartphones, leaving only the software element.
The company has said it was looking into retaining webOS software and licensing it to third parties. If HP wanted webOS to be a third-party platform, they could've done it some time ago. But very few device makers want to license it, Kay said, adding that it stands little chance against other mobile platforms such as Apple's iOS and Google's Android.
"Nobody wants to license that thing. If they don't build their own hardware and can't license it, they bought Palm for nothing," Kay said.
Moving forward, HP has some other options, including "a long-shot possibility to become a leader in enterprise cloud as an anchor of a larger ecosystem of products and services," said Forrester Research analyst Frank Gillett in a statement. "They could buy Amdocs for enhanced billing and monitoring; but buying SAP still doesn't make sense."
But there could be fallout for HP's board due to Apotheker's "sudden removal," Bernstein Research wrote in an analyst note released before HP made the announcement.
"The potential sudden removal of Apotheker as CEO -- and the fact that such Board discussions were once again leaked to the press -- are likely to further undermine the Board's already fragile credibility," the note states. "Our conversations with major shareholders also indicate that they have been disgruntled with the Board, given it has made and approved a series of decisions (Hurd's firing; Leo's hiring; approval of the Autonomy acquisition; the premature announcement of the exit of the PC business) that many shareholders believe were poor decisions and misaligned with their interests."
(Agam Shah in New York, Stephen Lawson in San Francisco and Robert McMillan in San Francisco contributed to this report.)
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com