Why Apotheker Makes Sense For HP

HP's decision to appoint former SAP chief Léo Apotheker as CEO came straight out of left field but could be a shrewd long-term play.
Author:
Publish date:

PALO ALTO, Calif. (

TheStreet

) --

HP's

(HPQ) - Get Report

decision to appoint former

SAP

(HPQ) - Get Report

chief Léo Apotheker as CEO came straight out of left field but could be a shrewd long-term play by the tech heavyweight.

In a statement released after market close, HP lauded Apotheker's track record, explaining that he helped lead SAP to 18 consecutive quarters of double-digit software revenue growth.

This could be key to HP's future. The tech giant, like its arch-rival

IBM

(IBM) - Get Report

, is on something of a software tear, recently

snapping up security specialist ArcSight (ARST) for a massive $1.5 billion.

HP's hardware is already widely deployed in corporate data centers and the tech giant is the dominant force in the PC market. Clearly, software and services are the next frontier and Apotheker could help HP ramp up its systems management efforts against IBM's Tivoli technology.

With $14.8 billion in cash and investments exiting its recent third quarter, it is also highly likely that Apotheker will bolster HP's OpenView technology with even more software acquisitions.

Apotheker's other big plus for HP is his international expertise. "Léo is a strategic thinker with a passion for technology, wide-reaching global experience and proven operational discipline," explained HP board director Robert Ryan, in a statement released after market close. "Exactly what we were looking for in a CEO."

Overseas sales accounted for $16.5 billion of HP's total revenue of $30.7 billion during the third quarter, with EMEA sales rising 9% to $10.9 billion.

There will, however, be plenty of skepticism about HP's decision, with critics already pointing to

Apotheker's short tenure as SAP's CEO

. The software maker had been struggling with with falling sales and an increasingly competitive landscape prior to Apotheker's resignation earlier this year.

Apotheker will also have his work cut out in continuing Hurd's legacy of tight cost control. The former CEO was ruthless in making cutbacks at HP during the recession, earning plaudits on Wall Street, but hardly endearing himself to the company's rank and file.

HP, with its market cap of $95.4 billion, is also much larger than the $58 billion SAP, and Apotheker will have to juggle a much broader portfolio of products and services than he is used to.

Investors were underwhelmed by the announcement of HP's new CEO. The company's stock fell $1.21, or 2.88%, to $40.86 in extended trading.

--Written by James Rogers in New York.

>To follow the writer on Twitter, go to

http://twitter.com/jamesjrogers

.

>To submit a news tip, send an email to:

tips@thestreet.com

.