By Gabriel Madway

SAN FRANCISCO (Reuters) - Hewlett-Packard Co
named Leo Apotheker, the former head of German software
company SAP, its new chief executive in a surprise

Hewlett-Packard's shares dropped 3 percent in after-hours

The recruitment of the long-time software industry veteran
and Silicon Valley outsider -- who left SAP abruptly after just
seven months at the helm amid a wave of customer complaints --
disappointed some who worried about his ability to steer a
diverse, $130 billion hardware and services company.

Apotheker, a multi-lingual salesman schooled in economics
and international relations, succeeds Mark Hurd, who quit amid
a scandal involving a female contractor. Apotheker also was
named to HP's board.

Ray Lane, a well-known venture capitalist and former top
executive at software giant Oracle Corp, will fill the
chairman's post that Hurd also had occupied.

The top job at HP offers a unique opportunity to lead a
technology icon but comes with big challenges and expectations.
Unlike in 2005, when Hurd took over an HP in disarray,
Apotheker will be at the helm of a well-run company whose
investors will not be sated with another round of cost cuts.

HP said Apotheker helped transform research and development
at SAP, while driving expansion.

In an interview with Reuters, Apotheker said he would focus
on innovation and growth. He acknowledged the challenge of HP's
size and complexity, but underscored the company's "deep and
talented" management team.

Apotheker -- who helped steer the first major round of job
cuts at SAP -- said under his stewardship HP would not relent
in its efforts to drive efficiency.

"You're never done with efficiency, and at HP we'll
continue to drive efficiency," he said. "However, we will also
want to continue to have a real focus on growth. So we'll do

But Fort Pitt Capital analyst Kim Caughey expressed doubt
about Apotheker moving from a software company to HP, a
behemoth with more than 300,000 employees and a commanding
presence in the personal computer, server, IT services and
printer markets.

"SAP is a very different sort of company than HP, and that
is my biggest concern," Caughey said. "The scope of SAP is very
different, as are the customers. What does he know about
hardware? That's the question."

Wedbush Securities analyst Kaushik Roy said, "He can be an
agent of change. Investors were focused on 'how do you bring
back R&D, how do you bring back innovation?"'


The appointment of an outsider -- the third straight
external hire after Carly Fiorina and Hurd -- surprised some
observers who had bet on a promotion from within.

Many had expected Todd Bradley, PC division chief, or Ann
Livermore, who heads its enterprise arm, to take on the role.
Cathie Lesjak, who had served as interim CEO, remains CFO.

However, a source familiar with the matter has said some on
the board were concerned about Bradley's strategic vision and
that Hurd had been a major supporter of his.

HP's board cast a wide net in search of a new CEO, reaching
out to two senior IBM executives, who quickly declined
to pursue the position, according to two sources.

Apotheker had spent more than two decades at SAP. He was
named SAP co-chief executive in April 2008, and became its sole
leader in July 2009.

His tenure was marked by criticism of SAP's lack of
direction, and customers raged when SAP instituted its first
maintenance fee increases in a decade. During his term, SAP
made its first-ever major round of job cuts.

"Leo is a very bright guy. He has a bad rap because he got
handed the wheel of the Titanic five minutes after it hit the
iceberg," said Peter Goldmacher at Cowen and Co.

HP's board named Lane as non-executive chairman -- marking
the separation of the chairman and CEO roles. Lane is managing
partner at venture capital firm Kleiner Perkins Caufield &
Byers, and previously served as president and chief operating
officer at Oracle.

Both appointments are effective Nov. 1, and come nearly two
months after the controversial Aug. 6 departure of Hurd, which
sent shock waves through Silicon Valley and upset investors who
credited him with turning the company around.

Hurd may be a tough act to follow. He transformed the
company into a diversified IT powerhouse, the largest
technology company in the world on a revenue basis.

"The investment community wanted an outsider to be named
CEO," said Gleacher & Co analyst Brian Marshall. "They view HP
internally as a little bit dysfunctional in terms of all the
issues they had in senior management in the last couple of

Analysts said Apotheker and Lane could serve to deepen its
growing rivalry with Oracle, which is a bitter rival of SAP's.

Oracle CEO Larry Ellison lashed out at HP over Hurd's
departure, and then hired him as president, drawing HP's wrath.
The companies have publicly reconciled.

SAP co-CEO Bill McDermott called Apotheker's hiring "great
news. ... This move only sets the stage for an even deeper
relationship between our two companies."

HP shares fell 3 percent to $40.80 in extended trading,
after closing at $42.07 on the New York Stock Exchange.
(Editing by Edwin Chan, Robert MacMillan, Steve Orlofsky,
Richard Chang and Carol Bishopric)