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Saturday, October 1, 2011

HP: Larry Ellison's New Plaything

HP:  Larry Ellison's New Plaything
As reported in the Wall Street Journal, Oracle's Larry Ellison is having his fun with beleaguered HP, like a cat with a ball of yarn. This time over HP's ill-conceived acquisition of UK-based content management vendor Autonomy.

Larry claims Oracle was pitched the Autonomy business by their CEO Mike Lynch and Silicon valley dealmaker Frank Quatrone in April, but rejected  an acquisition because at $6 Billion, it was grossly overvalued. (Ouch! HP is acquiring Autonomy for nearly $12 Billion.)

Mike Lynch steadfastly denied pitching Autonomy to Oracle; Larry says he's lying. Who is telling the truth?

The tit-for-tat between Larry, Mike, and Frank went like this.


I think Larry is. You don't show up at a meeting with Frank Quattrone to talk to Oracle's president Mark Hurd and acquisition's chief Doug Kehring to talk about databases, now do you?

Let's have a look at the timeline. Frank says he sent financials in January, and the two sides met in April, which Oracle confirms. Obviously, this gave Oracle two months to review financials. Sounds like a deal in progress to me.

But why are Mike and Frank so sensitive to the topic? I mean, companies talk about what-if scenarios and synergies  all the time. Well, HP is going through a serious case of buyer's remorse.  And Larry's comments only add fuel to the investor fury for the high price ex-CEO Leo Apotheker paid for Autonomy.

And why the high price? One can only speculate that Oracle had something to do with it by sending a backchannel signal that they were in the deal. Kind of like what the Yankees did to the Red Sox in faking their interest in Carl Crawford so the Sox would have to pay a higher price. Or perhaps Mr. Quattrone let HP know through the grapevine that Oracle was going to move on Autonomy. Either way, the plot thickens...

Saturday, September 24, 2011

The Groupon Put-on
Ya gotta wonder sometimes. Groupon, the wonder company that brings you must-have offers like pole-dancing classes and salt treatments, is in danger of imploding its IPO, as reported today in the Wall Street Journal. The fairy tale is a flame out.

Groupon is now restating its last year's revenue - by half. This usually doesn't bode well for an IPO, but their are plenty of suckers out there.

Now to be fair, this is all about revenue recognition.  Groupon books the full value of a deal, and then pays the participating merchant as a cost of sale.  This is normally done in technology business and is perfectly acceptable, except when you are selling shares to the public to value yourself at $20 Billion. The SEC is finally doing  its job.

Just barely a year since it rejected a $5 Billion offer from Google. What were they thinking.  Gordon Gekko was wrong, Greed is stupid.

Friday, September 23, 2011

HP: A silicon valley tragedy in four acts

I have had considerable experience working with (and against) HP over the past 20 years - as a partner, competitor, plaintiff, and, sadly, shareholder. I am often asked what I think regarding changes that  have taken place at HP.

The turmoil at HP really began some years ago when Carly Fiorina became CEO.  With her tenure began the endless shifts in strategy and boardroom follies that continue to this day. When Mark Hurd became CEO -- after a board-inspired  coup d'├ętat -- tensions in the company were suppressed, as were the investments necessary to sustain the tech titan for years to come. Poor Leo Apotheker never had a chance: by late 2010, HP's years of changing directions and ineffective execution on a corporate direction had put it into a strategic corner.  HP had to act decisively and cohesively, as competition from IBM, Apple, and Oracle whittled away at their market share and prospects for growth. (You grow or die in the tech  world.)

The lack of company unity behind a strategy has resulted in wasted billions in contradictory acquisitions.  Carly bought PC manufacturer Compaq for $25 Billion (shortly before IBM decided to divest itself of its PC business). Mark Hurd bought consulting vendor EDS ($14 Billion) and smartphone maker Palm ($2 Billion). And Leo just bought content discovery vendor Autonomy for $10 Billion or 10x revenue! What were they thinking!

The latest HP strategy is to focus on the higher margin enterprise business and away from consumer electronics, effectively throwing in the towel to Dell and Apple. This means they will compete toe-to-toe with IBM and Oracle, with a former internet queen, CEO No. 4 Meg Whitman, at the helm. This my friends will be the final act of HP as we know it.

The strategy is not a bad one, but all signs are that execution of the strategy will be smothered by infighting within the board and within competing interests at the company (yes, what happens in the board at HP also reflects the lack of cohesion within HP).  This is also a risky strategy because HP does not have the enterprise software portfolio to compete against IBM and Oracle at once. It also carries with it the risks inherent in any large-scale transformation of a massive company. Many of us saw IBM accomplish a stunning turnaround in the early 90s, after it experienced the beginning of the decline of its mainframe monopoly. In many ways, HP faces the same challenges as IBM did then, when tech outsider Lou Gerstner took over from American Express.  And Apple has done the same, emerging from obscurity to leadership in the second reign of Steve Jobs. 

My advice to Meg Whitman?

  1. Learn what HP is good at. HP excels at building products that both consumers and businesses like, making products with great quality at the right price. Using this flair for product design is a great way to compete with IBM in the enterprise.
  2. Align the organization and market around the new strategy. This may take time, but the "shooting-from-the-hip" tactics of Leo confused employees and customers.
  3. Lay down the law with the HP board. Make sure your new contract contains severe penalties for boardroom malfeasance. 
  4. Make peace with Larry Ellison. Signs are that Oracle is struggling with their Sun server business, and you could use Oracle to gang up on IBM. Who knows, maybe something could be worked out here?
  5. Take the time to do it right. Investors will howl, but it takes time to change the course of the supertanker HP.
  6. Punt the Autonomy acquisition and pay the break up fee. Even if there were a fit here, integrating a business in a time of turmoil is a recipe for disaster. If you are dead set on content management, Open Text would be a far better fit.

As for my HP shares? I will wait and see...