HP’s Breakup is Oracle’s Future

The news that Meg Whitman is finally pulling the plug on the Sisyphian task of trying to resurrect HP has profound implications for the future of Oracle, and not just because the mess that Whitman was unable to unravel was an HP made functionally unmanageable by a previous HP CEO: Mark Hurd, now co-CEO of Oracle. I think Oracle has been on the leadership skids for a while, but Hurd’s track record at HP, the end-game of which is now being played out in the breakup of the once-vaunted tech leader, provides a good roadmap for how Oracle ends up on the chopping block like HP.

The news also provides some vindication for the brief reign of Léo Apotheker at the helm of HP. Léo had been tasked with the task Meg has largely failed at – finding and developing a synergistic, One HP sales, marketing and product development strategy. Ironically, considering this week’s news, when Léo tried to execute the first steps of a breakup of HP, he was summarily and rather rudely jettisoned by a board that included Ms. Whitman herself. The fact that Meg has now acknowledged failure in what Leo was hired to do and is now executing a version of what Léo was fired for trying to do shows how far expectations have fallen for HP and how little true leadership the HP board was able to provide.

The fact that the stock market is so far responding favorably to the breakup adds a double-irony to the news. If the past is truly prologue, then breakup is what’s next for Oracle too. The stage is set in a similar fashion: the current leadership team – Mark Hurd and Safra Catz – are numbers people, not techies. Neither has a track record for visionary leadership, product development, or any of the attributes that Oracle will need to get back in an innovation game it has been losing of late — mostly because the main innovations Oracle has been pushing in the market are the engineered systems that Larry bought from Sun and handed over to Hurd. And, as we know from the numbers – Oracle has been sticking to this strategy despite a consistent failure to provide for growth and profitability.

Hurd is by far the most dangerous of the two for Oracle. He’s a hardware guy, a numbers guy, infamous during his time at HP for cutting costs and disabling any mechanism for synergy between HP’s PC, printers, servers, and services divisions. His track record at HP looked good in the quarterly lens with which Wall Street tends to view all public companies, but it was clear from the analysis that took place when Apotheker came on board (and which I was part of) that there was simply no mechanism in place to do anything synergistically: no ability to jointly develop products, no sales force that could sell across the whole HP product line, a services division that hardly considered itself part of HP, a board and senior executive team at odds with itself, and on and on, ad nauseum.

All that mattered, and what Hurd bequeathed to Apotheker and Whitman, was that each group dutifully reported in every quarter with the numbers that Hurd and the Street were looking for. Perhaps the biggest irony in the fate of HP is that it became clear during the breakup discussion that started when Apotheker was in charge, and continued into the Whitman era, was that the main reason not to break up HP was the cost-effectiveness of its supply chain. How pitiful is that – the only point of true cross-HP synergy was in direct materials procurement?

It’s a sad day when one of the biggest strategic values of a formerly innovative tech company comes from its ability to squeeze costs out of its suppliers and logistics chain. Sounds like what you’d expect from a pizza chain – indeed, Tom Monahan, the founder of Domino’s Pizza, used to say that his epiphany came when he realized he wasn’t in the pizza business, he was in the delivery business. Great tasting pizza, who the hell wants that?

What’s the bottom line here with HP? I think the law of the land – literally – dictates that we look no further than the company’s board of directors. Much has been written about how dysfunctional the HP board was, and I think when the annals of Silicon Valley history are written, the HP board will be looked at as one of the worst. Remember the pretexting scandal of 2006? The acquisition of EDS in 2008 – which ended in an $8 billion write-off? The Palm acquisition in 2010 – which resulted in a $2.1 billion write-off. The “oops, we forgot to interview the CEO candidate” screw-up that end with the hiring of Apotheker? The completely and shamefully bungled attempt to announce the intent to spin-off the PC unit, which was instantly retracted and for which Apotheker was made the scapegoat?. And of course Autonomy – the $8.8 billion write-off that keeps on giving, as long as you’re a lawyer.)

This serial mismanagement and negligence at the board level that is nothing short of an egregious abuse of power. That many mistakes, so close in time to one another – why haven’t the shareholders risen up in arms? The answer to that question is left for another time and place. Suffice to say, the board set the stage for the break up by approving disastrous merger after disastrous merger, and letting Hurd divide and conquer, instead of nurturing the culture of innovation and value-add that was HP’s birthright. And so here we are, closing in on the end of 2014, watching HP spin off a division no one would buy (PCs and printers) and a division not enough customers want to buy from (which includes EDS, which no one would buy either.)

I don’t think Oracle’s board has done anything similar – for the most part, the big acquisitions have been accretive, at least to the understanding of most financial analysts. But the Sun acquisition is starting to carry the stench of failure into the rest of the business, and elevating Hurd to the co-CEO spot means it’s virtually impossible that, at least under his watch, Oracle will ditch its hardware business.

Unless the Oracle board – which is currently very much stacked in Hurd’s favor – changes its focus away from hardware back to creating a leadership position in software and services, I predict we’ll eventually see a spinoff of hardware and software that will echo the HP breakup. Mark Hurd will be allowed to ride his hardware herd into the sunset, literally and figuratively, while, hopefully Thomas Kurian, one of the brightest minds in enterprise software today, will be finally given the CEO job he deserves and most certainly covets. If he hasn’t left in disgust by then.

So good luck Oracle, with HP showing the way, you’ve got only one way to go. In fact, maybe giving the hardware division to Hurd sooner rather than later would be a great idea. Continuing the hardware focus, which Hurd will certainly do, isn’t going to end well. The big iron ship sailed a long time ago. It sank Sun, it’s sinking HP and IBM, and if Oracle’s board stays the course, it will sink Oracle too.

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