Time published a story May 27 entitled: “Meg Whitman Has the Hardest Job in Silicon Valley,” that claimed Meg Whitman, in cutting headcount and shrinking the size of Hewlett Packard (HP), is being too aggressive. Virtually every sector of HPs businesses was competitively losing market share when Whitman came in three years ago as CEO for $1 in salary and a boatload of stock options. Today, a smaller and more agile HP is a cash flow machine and the stock is up 125% since the end of 2012.
Meg Whitman has, in fact, the easiest job in Silicon Valley: just keep cutting costs, and focusing on more profitable market segments and generating tremendous amounts of free cash flow for shareholders.
HP just reported first quarter earnings per share of $0.88 on revenue of $27.3 billion, exactly in line with guidance that Whitman gave Wall Street analysts at the start of the year. Although it marked the 11th straight quarter of declining sales under Whitman, HP generated $3 billion in cash flow from operations and returned $1.1 billion to shareholders through dividends and buybacks. Whitman’s counter-intuitive strategy of “doubling down on hardware” is working.
As someone who grew up in Santa Clara, California a few blocks from HP Headquarters, I was very aware of the challenges Meg Whitman shouldered in September of 2011 when she became the CEO of Hewlett Packard. Former CEO Mark Hurd had just been thrown out by HP’s Board of Directors after a scandal with a female contractor who filed sexual harassment charges against the company.
That poor judgment also extended to the way Hurd had run HP. Wall Street analysts had been impressed by his ability to “grow” HP revenue into the largest computer company in the world. But they did not yet realize Hurd had been “buying sales” in a price war against Lenovo and other Chinese personal computer manufacturers; bought Palm Computer in 2010 as it was imploding; and bought Electronic Data Systems from General Motors four months before the 2008 Financial Crisis would bankrupt the car company and its mortgage business. After Mr. Hurd’s departure, no top executive in “The Valley” for the next 13 months wanted the job once they were shown the company’s inside trends.
“The Valley” was shocked when Whitman took the HP turn-around job for a $1 per year. After 10 years of turning eBay into a legendary consumer technology company as CEO, Whitman was worth over $10 million a year in salary plus bonuses as a CEO for a growth company.
Whitman immediately implemented a policy of transparency and uniquely urged employees to take Hewlett-Packard’s setbacks personally. Whitman challenged HP with the fact that on an annual revenue per worker basis, Google generates $1.3 million, Facebook’s $1.2 million, but HP only produced $354,000. She cut almost 10% of HP’s 350,000 workforce and assured staff more cuts were coming as the company internally focused on growing tablets, cloud computing servers and 3D printers.
When the Wall Street Journal interviewed her this year about the business risks of low-cost Lenovo buying IBM’s server business, she replied “Servers are not PCs. They are made special by software. That is not something we’ve seen from Lenovo.”
When asked why she had cut 34,000 job cuts and was expected to cut 16,000 more (just announced) she answered, “If you let 1000 flowers bloom you have to weed the garden. We are investing in converged systems, converged storage, cloud management platform, software defined networking, analytics, and our PC business.”
Whitman’s top project in HP is called “Moonshot Systems.” It’s a revolutionary effort to make energy-efficient servers for cloud computing that are 80% smaller than industry averages; Facebook and others are already testing models.
After three years of her $1 salary, Meg Whitman received a $1.5 million raise this year as the company moved from the hard slog of turnaround effort into a growth company. With the strong competitive momentum that HP has right now, Meg Whitman seems to have the easiest job in Silicon Valley.