HPE returns to techie roots with naming of Neri to succeed Whitman

Hewlett Packard Enterprise will be run by an engineer for the first time in almost two decades, now that Antonio Neri is succeeding Meg Whitman as chief executive officer. PHOTO: WWW.HPE.COM

NEW YORK (BLOOMBERG) - Hewlett Packard Enterprise is going back to its roots.

The company now known as HPE will be run by an engineer for the first time in almost two decades, now that Antonio Neri is succeeding Meg Whitman as chief executive officer."The next CEO of the company needs to be a deeper technologist, and that's exactly what Antonio is," Whitman said Tuesday on a conference call discussing the succession plan.

HPE, formed in the breakup of Hewlett-Packard's corporate-computing divisions from its printer and PC business in 2015, could use an injection of the technological prowess that characterized its early years when its predecessor - famously founded in a garage in Palo Alto, California, in 1939 - pioneered inventions in areas such as atomic clocks, inkjet printers and scientific handheld calculators. Whitman, a former CEO of EBay who holds an MBA from Harvard University, brought expertise in shaping strategy and streamlining operations. Besides overseeing the split, she made acquisitions such as Silicon Graphics and Nimble Storage, while also sharpening the company's focus on shareholder returns and slashing more than 80,000 jobs.

Even so, Whitman had a tougher time navigating the technological shifts - like increased reliance on cloud computing - that made it harder for HPE to compete with newer and more agile competitors such as Amazon.com. That's where Neri, who graduated from Escuela Nacional de Educacion Tecnica in Argentina, will need to draw on his background in engineering and his work helping develop and introduce new products at HPE and its predecessor company.

HPE's elevation of an executive with engineering chops echoes the move by Microsoft in 2014 to appoint Satya Nadella as CEO to succeed Steve Ballmer, who rose through Microsoft's sales organization to take over from co-founder Bill Gates. While Ballmer was adept at amassing a mammoth cash pile and addressing needs of large corporate customers, he largely failed to position Microsoft for the mobile computing revolution.

Just how daunting a task lies ahead for Neri, who takes over Feb 1, was made plain on Tuesday (Nov 22) when HPE gave a forecast for earnings in the fiscal first quarter that missed analysts' estimates. Revenue in the fourth quarter also fell short of projections.

The Palo Alto, California-based company said its server business will see some declines next year, and the pricing environment isn't expected to improve. HPE's 2018 operating margin will be about 11 per cent to 12 per cent, CFO Tim Stonesifer said. Margins in the first quarter may be pressured, but will improve throughout the year, he said.

Whitman inherited a company whose leadership had already veered away from technologists. When Lewis Platt, who began his career at HP as an engineer in 1966, stepped down as CEO in 1999, the company appointed its first leader from outside the company - Carly Fiorina, a former star sales executive at Lucent Technologies. Following her ouster in 2005, the computer maker tapped Mark Hurd, who as chief operating officer of NCR Corp was known for successes in improving efficiency.

Hurd resigned in 2010, and was eventually replaced by former SAP CEO Leo Apotheker, another executive who had risen through the sales ranks rather than the scientific ones. Whitman was brought in about a year later when Apotheker was fired.

Whitman, 61, one of the most high-profile women in the technology industry, will remain on the board of Hewlett Packard Enterprise. She took over Hewlett-Packard after it suffered a series of missed targets amid rising competition under her predecessor. She set about slashing jobs and dramatically resetting investors' expectations for how well the company could perform at a time when customers were adopting cloud computing services HP was ill-equipped to provide. After initially opposing efforts to break up the company, she eventually agreed to split Hewlett Packard's PC and printing units from higher-margin businesses aimed at corporate computing.

The CEO position is a different job now than what it was when Whitman first took over, and will focus more on the operational aspects of the company, said David Heger, an analyst at Edward Jones & Co.

"They're at a point now where they need a different skill set than what she offered," he said. "They're finished with doing spinoffs and re-engineering, and now what they have left is what they're going to focus on going forward."

During her tenure, Whitman oversaw almost US$18 billion in share repurchases and dividends and delivered a total shareholder return of 89 per cent, HPE said. She also cut more than 80,000 jobs before and immediately following the split. Since the two companies began trading separately on Oct 19, 2015, HPE stock has gained 47 per cent. The shares fell 9.1 per cent to US$12.84 at 10:55am on Wednesday.

Neri's elevation wasn't entirely a surprise. The longtime HP executive, 50, was promoted to the role of president in June, raising speculation about Whitman's succession plan. In his more than two decades at the company, starting as a customer-service engineer in a call center, Neri climbed to one of the top leadership positions at the Enterprise Group. That division is HPE's largest business segment, including servers, storage products, networking and services. In that role, Neri oversaw research and development, new product introductions and marketing strategy.

Still, on the conference call, analyst Toni Sacconaghi of Sanford C Bernstein & Co said the CEO change felt "abrupt.""

There's still a long ways to go in terms of improvement in the server business, and margins were down," Sacconaghi said on the call. "So it's not entirely obvious to an outsider that HP is at some ready point for a change."

Whitman, who has recently said the company has a lot more work to do, said there's been no change in that sentiment, but that appointing Neri as CEO is "the right thing."

"We've got a very good leadership bench," she said. "We've got strategy that's crystal clear and focused."

Whitman was the second-highest-paid American female executive, after IBM's Ginny Rometty, with compensation of US$52.3 million, according to the Bloomberg Pay Index. Since 2009, 19 female CEOs of Standard & Poor's 500 companies have stepped down. In only three of those cases was she replaced by another woman, according to data compiled by Bloomberg.

Her departure brings the number of female CEOs in charge of S&P 500 companies to 25, or 5 per cent, according to data from Catalyst, a nonprofit that focuses on women in the workplace.

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