After a Cautious 2012, HP Looks Ahead

It's become quite fashionable to bash Hewlett-Packard these days—and there are plenty of good reasons to do so.

HP remains mired somewhere in the middle of a multi-year restructuring process that could well get uglier before it gets better, by CEO Meg Whitman's . But at least Whitman and her lieutenants appear to have a coherent plan for rebooting the storied Silicon Valley giant—something that couldn't be said about HP's previous leadership.

In fact, you could argue that the most encouraging moves HP made in 2012 were the ones it didn't make.

Cleaning Up a Mess
After taking over as president and CEO in late 2011, Whitman in the coming year. She stuck to that promise and as HP's fiscal 2012 unfolded, it became crystal clear just how disastrous for the company the jacked-up M&A agenda of Whitman's predecessors really has been.

Between them, former CEOs Mark Hurd and Leo Apotheker brokered four blockbuster, multi-billion-dollar acquisitions, which added big short-term gains on the revenue side of HP's ledger sheet but mostly caused headaches down the line. Of those, only the in 2009 appears to have been a neutral-to-good move, adding real value to HP's data center portfolio. In fact, HP's networking business was practically the only unit that had consistent year-over-year sales growth throughout 2012.

But the addition of 3Com's networking technology doesn't get close to making up for HP's in 2010, which has essentially been written off after the of the webOS-based TouchPad tablet last year, let alone deals for Electronic Data Systems () and Autonomy (), which in 2012 resulted in staggering write-downs of and , respectively.

Kudos to Whitman and her team for not leading HP down that garden path again during her first full year as CEO. They also deserve credit for showing restraint in other areas, under ongoing difficult circumstances.

A More Judicious Approach
HP appeared ready to hit the panic button after last year and was dropping hints about getting out of the PC business entirely. Whitman . Instead of taking a hatchet to the company, HP's new leadership is taking a more surgical approach—for example, redirecting resources towards R&D, merging the company's PC and printing businesses, and cutting its losses with Palm while retaining a level of stewardship over webOS.

Of course, restrained and surgical trimming doesn't look a whole lot different from the hatchet if you're on the receiving end of the blade. Whitman has set HP on a course for over the next few years. As many as 30,000 HP employees could be receiving pink slips between this year and 2014.

And let's be honest about HP's actual footprint in the high-tech industry. The company still holds the No. 1 or No. 2 market share position in 50 or more different IT markets, as industry analyst Patrick Moorhead noted (see sidebar for Moorhead's full take on HP's year). Hewlett-Packard is still very much at a crossroads—it has to decide whether to maintain such a wide-ranging portfolio or to start making some really tough calls and following through on them.

Through all of the turmoil, HP has continued to pump out PCs, servers, printers, and networking infrastructure while working to tighten up its IT services and software portfolios even as annual revenue in most of those areas declined. The company's networking business, as previously mentioned, is flourishing with year-over-year revenue up between 6 and 7 percent in the second half of 2012. But sales are down in nearly every other category from PCs to printers to industry-standard servers.

If that continues into 2013, HP will almost certainly have to pull the trigger and start shedding some ballast instead of just trying to tie it down tighter.

Tough Choices Ahead?
Dithering over such tough decisions was a . Whitman's window for sitting back and assessing the landscape is probably closing too—she'll have to pick a specific strategic path for HP to follow, sooner rather than later.

Want to see where that path may lead? It will be particularly instructive to see how HP handles getting passed up as the global PC market leader for the first time in a long time.

Lenovo, by some estimates, in 2012. In past years, under different leaders who were hell-bent on empire building over most everything else, that would have been a major black eye for the company. These days, casting off the burden of leadership in an increasingly commoditized market may be considered a blessing in disguise by Whitman and her team.

One small but perhaps instructive example of HP's newfound conservatism was its decision in June to to make a Windows RT tablet. The old HP probably would have rolled the dice on an unproven platform for a difficult-to-crack product category, even in the face of Microsoft's decision to undercut OEM partners with its own . Early returns on first-gen RT slates suggest that the new leadership's wait-and-see approach was the right one.

The computing giant also showed signs in 2012 that it's still got some fight in it. HP over the latter company's move to stop supporting Itanium-based server platforms despite an agreement brokered with HP in 2010 when Mark Hurd became co-president of Oracle.

Whitman is in the process of stabilizing the company and how that may play out in the next few years is anybody's guess. We could see a trimmed down HP that still keeps a toe in most of the many technology arenas it currently plays in. Or there could be something far more drastic in store—possibly even spin-offs and shutdowns of entire business units that may still deliver volume sales but drag down HP's profitability in a race against more tightly focused competitors in the data center, consumer electronics market, and elsewhere.

For more, see PCMag's year in review for , , , , , and .