Copyright (c) 2005, 
Dow Jones & Company Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Hewlett-Packard's positive quarterly earnings report on Tuesday was both good news and bad: good, because it bought the struggling company some time to get back on its feet after the recent craziness; bad if new CEO Mark Hurd doesn't see the weak profit margins as a warning that radical changes must be made if HP isn't to die a slow Silicon Valley death.
But what changes? Where HP should go now is the talk of Tech. And Mr. Hurd, currently making a tour of the company's divisions, is no doubt getting a lot of conflicting advice.
Well, here's a plan for saving HP. It may not fit his vaunted metrics, and it may run counter to almost everything Wall Street is hoping for. But if he is to return HP to its former glory -- as opposed to merely placing flowers at the memorial to Carly Fiorina's hubris -- he is going to have to take some risks . . . in reverse:
-- Restore. Buy Agilent Corp. Right now. This isn't an exercise in nostalgia. Agilent was the HP instrument group, the oldest part of the company, the true heart of Hewlett-Packard. It's all still there at Agilent: calm competence, easy toughness, the HP Way. When Agilent was ripped out of Hewlett-Packard, something in HP died. It needs to be revived.
But there are other reasons for buying Agilent. The future lies in integration, in the immersion of the digital world into the natural: smart houses, sensor networks, thinking machines, biological computers. What better way to establish a beachhead in that new world than to buy the world's largest test and measurement company? Another reason is that Agilent these days is the better run business of the two. It is only now emerging from a gauntlet no other company has run: torn out of the mother firm after 60 years of loyal service, enjoying the largest IPO in Silicon Valley history, then quickly crushed by the dot-com bust, losses, lay-offs, and then a renaissance. The folks who run Agilent not only know everything there is to know about the HP culture, they also know how to get the company through the hard times ahead.
And they know how to innovate -- that being the one thing that has always saved HP. While hardly anyone was watching, Agilent became not only a leader in test and measurement tools for the semiconductor industry, but also in biotech, networks, telecommunications and IT. If HP is to escape its current trap of overdependence on commoditizing products, it will have to get out of Target and get back to the labs. Agilent is already there -- and, right now, is a steal. The market still sees Agilent as just a semiconductor equipment maker, so the stock price is low. HP should swoop on this bargain.
-- Realign. HP is a bloated mess. Even HPers know that serious cost- cutting and lay-offs are inevitable. But beware of easy fixes. HP's real problems are philosophical, not financial. Merely tightening up the PC and printer groups may buy some short-term profits, but they won't restore HP to enduring health, much less its old greatness. Some of those operations do need to be slashed -- but the company had better have a strategy that involves more than reducing costs. It needs a vision of where operations are headed.
Mr. Hurd recently muttered something about getting rid of the "hobby businesses." He should be very, very careful about doing anything rash. Just about everything that made HP a giant came not from its mainstream businesses, but from those "hobby" projects that turned out to be world-beaters: LEDs, desktops, scientific and business calculators, minicomputers, printers -- even employee Steve Wozniak's little "hobby" that temporarily got away, the PC. If HP can't keep those projects in-house, then, as Dave Packard did, it should give the teams some money, send them off, and buy their businesses back when they have something great to show.
Still, if Mr. Hurd must cut, a good place to start would be Compaq. Buying that also-ran was a mistake, and it has been a cancer on the company ever since. Excise it, especially the demon-seed remnants of DEC. He should spare only the Tandem folks. Meanwhile, he should keep as many veteran HPers as he can: They have been far more loyal to the company than the company has been to them.
-- Reassert. For 60 years, HP was synonymous with the highest quality, service and integrity. These days, when people think of HP what comes to mind is a corporate soap opera, forgettable PCs, and flimsy plastic printers. HP calculators, because of their durability, were once the dream of every college kid. Today? The last description I heard of an HP printer was . . . (sorry, this is a family newspaper). Restoring HP's sterling product reputation is not an exercise in nostalgia. The combination of holding the high ground and being a technical innovator was once devastatingly effective. It can be so again.
-- Regain. Go back to being the leading supplier of productivity tools to professionals. HP should get out of low-end PCs and printers. Face it, Michael Dell won. Send him flowers and wish him luck, because he's going to need it. HP, like every other Silicon Valley company besides Apple and eBay, is lousy at consumer products and services. So it should dump the toys, repurpose the Enterprise Group, and return to selling to scientists, businesspeople, bankers, lawyers, academics and the military -- as well as newcomers like bloggers, game designers and bioengineers. HP needs to find out what these people really want -- be it open systems, integrated solutions, state-of-the-art tools -- and give it to them. They, too, are tired of the all-flash-and-no-service business club scene of the last few years and are ready to settle into a nice, enduring marriage.
-- Remember. Walter Hewlett was right. So were the employees of HP. They voted against the idiocy of the last few years, only to be sold out by the board of directors and institutional investors. HPers are smarter than newly arrived CEOs when it comes to their company. They know that what it will take to save HP is innovation -- and the HP Way. There have been attempts in recent years to discredit the latter, mostly with the complaint that it is some kind of mystical, managerial mumbo-jumbo that was obsolete 30 years ago. Garbage. The HP Way is a tough, hard-nosed business philosophy even better suited for today's increasingly global, virtual corporation than it was for the comparatively static and sleepy corporate life of a quarter-century ago.
In essence, the HP Way combines simple objectives, enlightened business practices, trust in employees to make the right choices, and ruthless self-appraisal. It creates an adaptive, innovative and ferociously competitive company that jettisons product lines but not people. By comparison, the Carly Way, profligate with human capital while clinging to aging and commoditized products, looks positively reactionary. HPers understand that; the question is whether they can teach their new boss in time. Sometimes, true radicalism lies in having the courage to go back and restore what was lost. If Hewlett- Packard is to once again become the World's Greatest Company, Mark Hurd will need the wisdom and courage to do just that.
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Mr. Malone, a Silicon Valley journalist, is writing a book on HP for Portfolio Books.
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