Sunday, October 03, 2010

HP Hires Ex-SAP Chief Apotheker as CEO. Why Is SAP/HP Merger Inevitable Now?

Léo Apotheker introduced himself as Hewlett-Packard’s new chief executive to Wall Street analysts on Friday on a conference call.
“H.P. should be more valuable than the sum of its parts,” Apotheker said. “Software is sort of the glue to make that happen.”
Investors, however, continued to voice their dissatisfaction with Leo Apotheker’s arrival, sending H.P.’s shares down about 4 percent to $40.42 during midday trading on Friday.
Mark Hurd drove HP very hard with brutal cost-cutting and restructuring laying off about 50,000 during his tenure. Following his ouster by the HP Board, he immediately landed a job with Larry Ellison at Oracle. 
HP Board continued to surprise investors, analysts, customers and even its own employees; They abruptly fired Hurd, then sued him not to join Oracle but then settled it shortly. Once again they passed over HP's internal candidates to hire ex-SAP chief who lasted only about seven months as sole chief executive of SAP.  He presided over major product delays, upset the company’s customers by raising prices during the heart of the recession and has never run a business near H.P.’s size and diversity.
This appointment tells me that HP will now be all about selling to large clients, repairing employee morale with a lot of pep talk and boosting software business to better compete against IBM and fend off Oracle that will come after HP's hardware franchise aggressively with Hurd's new role. 
I would see an inevitable merger of HP and SAP. HP's software business has been lackluster at best. The company is so desperate that they recently bought 3Par at an irrational multiple in a bidding war with Dell.  Unlike IBM, HP is still a hardware company.  As services and software converge in the enterprise giving rise to cloud computing opportunities, HP is even more pressed to build out a substantial software business.  We would agree with Apotheker that software will play even bigger role " as glue" going forward.
SAP is the largest independent business software company without a strategically compelling investment case to investors. Oracle or IBM or Microsoft would not be able to buy SAP. The only logical candidate is HP. Leo's appointment should now accelerate the inevitable merger between HP and SAP sooner or later.

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1 comment:

DAVIDJY said...

Fascinating and insightful analysis.