Hewlett-Packard Picks Apotheker as CEO; Shares Fall

Leo Apotheker, Hewlett-Packard Co.’s new chief executive officer, brings two decades of software expertise that may help the biggest computer maker add applications to hardware and step up rivalry with Oracle Corp.

Apotheker spent most of his career at SAP AG, the biggest maker of business-management software. He cut costs and led some of SAP’s biggest acquisitions as sole CEO.

HP will draw on Apotheker’s background as it adds software to computers, smartphones and networking equipment. His unexpected departure from SAP this year, after the first annual sales decline since 2003, also fueled concern he won’t spur the growth HP needs as it enters new businesses and combats Oracle, Cisco Systems Inc. and International Business Machines Corp.

“Apotheker has no experience in hardware, and one shouldn’t forget that he wasn’t exactly crowned with laurels when he left SAP,” said Frank Niemann, a consultant at Pierre Audoin Consultants in Munich. “By a lack of sensitivity towards customers and employees he generated a lot of negativity.”

Hewlett-Packard, based in Palo Alto, California, fell today after the appointment of the 57-year-old software executive took investors by surprise. The stock declined $1.30, or 3.1 percent, to $40.77 at 4 p.m. in New York Stock Exchange composite trading. It has lost 21 percent this year.

Computer makers are integrating software into their products at earlier stages to help customers tackle tasks such as scouring reams of data and managing global shipments of components. Companies traditionally focused on hardware are having to become more adept at using applications.

Lane Appointed

“If you really want to innovate and grow, you have to think like a software executive,” said Bill McDermott, co-CEO of SAP, who joined in 2002 and was mentored by Apotheker.

HP also appointed Ray Lane, the managing partner at Kleiner Perkins Caufield & Byers as nonexecutive chairman.

Apotheker and Lane, who was previously Oracle’s chief operating officer, will succeed Mark Hurd, who held the HP CEO and chairman roles until his resignation on Aug. 6. Hurd is now president responsible for sales, marketing and customer support at Oracle, SAP’s biggest rival.

HP’s board considered internal and external executives for the CEO role and narrowed it down to about six candidates, board member Bob Ryan said today on a conference call. Apotheker is the only one they offered the job to, he said.

‘Work’ Needed

“There’s a lot of work to be done” at HP, said Joel Achramowicz, an analyst at Blaylock Robert Van LLC in Oakland, California. He has a “neutral” rating on HP’s shares and says the CEO decision won’t cause him to change that. “The company needs new leadership that can make aggressive, risky moves to inject new vitality into the enterprise.”

Apotheker left SAP in February after less than a year as sole CEO. He presided over SAP’s first annual revenue decline since 2003 as customers delayed software purchases, while Oracle used acquisitions to expand in applications, SAP’s area of expertise.

SAP shares, which climbed to a record 71.58 euros in March 2000 -- when Hasso Plattner was in charge -- lost more than half their value by the time Apotheker left. He also tried unsuccessfully to push through a price increase amid the recession that left customers dismayed.

Still, Apotheker handled more than a dozen acquisitions, including the purchase of Business Objects for about $7 billion, the company’s largest deal, HP said in a statement yesterday.

‘Endurance’ Credit

Apotheker, who speaks five languages, rose through the company’s sales division, unlike his three predecessors, who had science backgrounds. He was appointed co-CEO in 2008 and became SAP’s sole CEO the following year.

Apotheker expanded SAP’s sales force and hired and mentored top sales managers, including current co-CEO McDermott. Grasping the impact of the global financial crisis, he slashed more than 3,000 jobs, SAP’s first major cuts. He also spent more than 200 days a year travelling on business, and has been to more than 100 countries, according to SAP.

“You have to give him credit for endurance,” McDermott said in an interview. “You won’t find a guy more willing to connect with customers.”

HP, which has used acquisitions to expand in software, will benefit from Apotheker’s expertise in that area, said Shaw Wu, an analyst at Kaufman Brothers LP in San Francisco.

Push for Margins

“Software is an area HP should be more aggressive in,” said Wu, who recommends buying HP shares. “It’s a higher-margin business.”

One of Hurd’s largest acquisitions was the $4.5 billion purchase of software maker Mercury Interactive Corp. HP also recently purchased security software maker ArcSight Inc., as well as Fortify Software, which helps information technology departments analyze code for security holes, and data-center software company Stratavia.

“I can bring to this business the capacity to have a strategic vision, a technology vision and the ability to make people work together,” Apotheker said in an interview.

A resident of Paris while at SAP, Apotheker said he plans to relocate to Silicon Valley and work from HP’s headquarters.

Apotheker’s base salary will be $1.2 million a year, HP said in a regulatory filing today. He will get a $4 million signing bonus and $4.6 million relocation benefit. For fiscal 2011, he will get a bonus of as much as five times his salary, depending on whether he achieves certain performance goals. He will also receive HP shares and restricted stock.

Rebel

Apotheker spent his youth in Belgium and Germany, where his parents, Polish Jews, moved after World War II. In an interview with BusinessWeek in 2009, he recalled being a rebel. In high school, Apotheker organized a student strike.

“I wanted a revolution -- and also for cigarettes to be permitted in school,” he told the magazine, now called Bloomberg Businessweek. In the melee that followed, a policeman on horseback knocked out two of Apotheker’s teeth, he said.

Apotheker moved to Israel when he was 18 to attend Hebrew University of Jerusalem, where he studied economics. He later held several financial and operations jobs at European companies before joining SAP in 1988. He was awarded the French Legion d’honneur in 2007 for his contributions to the French economy.

Apotheker’s international background can help HP compete in international markets, Lane said. More than 63 percent of HP’s fiscal third-quarter revenue came from outside the U.S.

“We can get caught up in drinking our own bathwater in Silicon Valley,” Lane said. “He operates as a global citizen and that’s a real advantage for HP.”

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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