AFI BLOG: Media and Technology

HP’s Hurd Is About to Be Tested - BusinessWeek

After a sterling three-year run, the company’s CEO faces a weaker PC market and a stronger Dell

W. Shannon Reid has been a fan of Mark V. Hurd ever since Hurd took over as chief executive at Hewlett-Packard (HPQ) three years ago. But last month, the portfolio manager at the Evergreen Strategic Growth (ESGIX) fund cut back on his fund’s holdings in HP. He trimmed the stake at the end of December from 3.3% of his fund, or 651,470 shares, to 2.9%, because of concerns over how Hurd will fare in the year ahead. “There’s no question that [2008] will be his most challenging year,” says Reid.

Hurd took over HP in March, 2005, at a tumultuous time. The company had struggled under his predecessor, Carleton S. Fiorina, and she was ultimately dismissed after clashing with the board over how to improve HP’s performance. Hurd moved quickly to quell the drama and put the tech giant back on track. He cut costs and got operations humming, helping the company boost profits by 17% last year, to $7.3 billion, as revenues rose 14%, to $104 billion. From the day Hurd was named chief executive until the end of 2007, HP’s stock surged 132%, about five times the return of the Standard & Poor’s 500-stock index.

The reasons this year could prove so tough for Hurd are adding up. Tech spending is slowing amid an economic downturn in the U.S. and other countries. Archrival Dell (DELL) looks to be regaining its footing after stumbling badly in recent years, making it tougher to pick up share in key markets. And Hurd has fewer opportunities to boost margins and profits because of the cost cuts and operational improvements he has already undertaken. “He has done a good job in his first few years,” says Reid, whose fund is part of Wachovia’s (WB) Evergreen Investments, with $284 billion under management. “You always take on the easier tasks first, so it’s going to get harder.”

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