Customers and analysts: HP needs to rise above scandal

Improving financials have brightened HP's outlook, but a scandal that has resulted in the resignation of the company's chairman of the board, as well as state and federal investigations could seriously tarnish HP's reputation as it seeks to stabilize itself, users and industry experts say.

"There just seems to be a lot -- too much -- fluctuation within HP," says James Maas, network monitoring engineer at Fresenius Medical Care in Massachusetts.

Maas, who also heads up the New England Chapter of OpenView Forum, an independent user group for HP's management software, says negative press and frequent executive changes concern him when it comes to the company's priorities going forward.

On Tuesday, HP announced that Patricia Dunn, who ordered an investigation into leaks of company information to the media, would step down as chairman following the company's Jan. 18 board meeting. CEO Mark Hurd will succeed Dunn as chairman, while Dunn will remain on the board as a director, HP said.

Board member George Keyworth, who admitted to supplying information to the media, resigned on Tuesday, effective immediately. His resignation follows the resignation in May of board member Tom Perkins, who stepped down in protest over the way the investigation was being handled.

Perkins' concerns were made public in an SEC filing last week, in which HP admitted that the investigation included the use of "pretexting," in which investigators posed as journalists in order to get access to phone records.

"We are in negotiations with the company now and all we see is a lot of negative press coming from the board. I know it is a big company, but it makes me wonder how stable HP will be in the future," Maas says. "You have to ask yourself, 'Am I making the right decision investing in this technology.'"

HP needs to demonstrate that it is focusing on its products and not get bogged down with issues regarding the board, he says.

"The company has to be sure to let me as a customer know what they are doing to move past the negative times and onto developing the products I use," Maas says. "The executives need to focus on the business I realize, but they also need to be sure to continue expanding the scope of their products and detail to customers the future of their technology."

Analysts agree, saying that while many customers may not pay much attention to the board scandal now, if the issue drags on it could end up damaging HP's business.

"The board's tactics were inexcusable, but essentially isolated from customers, at least in every practical sense. But if the various investigations drag on, public perception of HP is likely to go downhill and that could cause concern among customers," says Charles King, principal analyst at Pund-IT Research.

At the same time, board shake-up will give Hurd the chance to make any changes he sees necessary at the board level. Hurd has been commended by Wall Street for setting HP back on course since he took over as CEO, replacing Carly Fiorina, a little more than a year ago.

While the shift could be a benefit, some analysts question whether the outcome will end up being more of a negative.

"The move is generally toward more board independence, so adding chairman to Hurd's titles does not seem like a particularly positive step," says Gordon Haff, an analyst with Illuminata. "I don't see it as directly harmful, but we are ultimately left with an HP board whose influence has to be significantly weakened."

Still, for the most part, analysts and customers say HP made a good move by asking Dunn to resign and that every effort should be made to move HP beyond the scandal.

"HP's stock is back up, and their financials are holding. I suspect that most of the public is not really interested in these kinds of stories except for the brief moments of time when they break into the headlines," says Rich Ptak, principal analyst with Ptak, Noel & Associates. "I suspect most people think it is just an slightly overzealous executive chasing a disloyal employee. They aren't going to try to go any deeper in the analysis than that. I think as long as HP successfully implements its business strategy, it will continue to do well."

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