Last year, amid the din of its boardroom-spying scandal, Hewlett-Packard quietly achieved a milestone: It edged out IBM in 2006 revenue, becoming the world’s largest tech company.

But in keeping with the no-nonsense style of Chief Executive Mark Hurd, there were no high-fives or laudatory e-mails to employees. In Hurd’s HP, the goal is to keep moving forward. As this turnaround master enters his third year at the helm of the computer and printer giant, it is clear that his nose-to-the-grindstone focus is yielding remarkable success.

HP’s stock is up 88 percent since Hurd arrived from NCR. The Palo Alto company shot past archrival Dell to become No. 1 in personal computers. It also surpassed IBM as the tech revenue leader. With Hurd’s intense focus on cutting costs, HP continued its remarkable financial turnaround even as the boardroom scandal gave it a black eye. The behemoth’s sales grew a respectable 7 percent in the most recent four quarters, continuing its reign as No. 1 on the Silicon Valley 150 list.

Yet as impressive as those accomplishments have been, the next act may be even more challenging for Hurd and one of the valley’s most storied businesses. Hurd, who replaced the ousted Carly Fiorina in April 2005, has made his reputation and found much success to date by cutting costs and wringing out inefficiencies. Now he needs to get HP on a path of consistent growth.

“We’ve got work to do,” Hurd said, in one of his typical statements last month at a technology conference. “We have made some progress … but not a lot.” Hurd declined to be interviewed for this report.

Initially viewed by some as purely an operations executive, and feared by employees for his “slash and burn” reputation, Hurd has proved to be a better strategist than many expected. After replacing some top executives with key hires, Hurd now has a team of lieutenants on whom he counts for frank discussions of their businesses. As a result of careful study over the past two years, Hurd & Co. have developed a strategy to grow in software, services, mobile computing, printing and tech infrastructure.

`Strategy’ discussions

“The discussions he has with me and the board are a lot more around the strategy of the company and where we are taking it,” said Shane Robison, an HP executive vice president and chief strategy and technology officer.

HP’s progress over the past two years has been impressive. In fiscal 2006, which ended in October, revenue grew 6 percent to $91.7 billion, while profit soared to $6.2 billion, up from $2.4 billion.

“We love him,” said Daniel Renouard, an analyst with W.R. Baird. “He has done wonderful things with what was viewed as a dinosaur a few years ago.”

In a bid to reduce chaos and redundancies, some of which came about as a result of HP’s $19 billion purchase of Compaq Computer, Hurd eliminated three tiers of management, decentralized sales and marketing, and gave his top executives more control over their own budgets.

In the past year and a half, the company has cut 14,790 jobs, or roughly 10 percent of the workforce, while also launching early retirement programs and tightening up on retirement benefits.

In the quest for additional cost savings, Chief Information Officer Randy Mott, who joined HP from Dell, has been leading a makeover of the technology systems that run HP. The company has consolidated its data centers to six from 85 and reduced the number of internal software applications to 1,500 from 5,000, using as much standards-based technology as possible, including everything it can from HP.

The tech revamp within HP is aimed at helping the company sell its computers, software and services to corporate chief information officers. “When I am selling to large banks and large auto companies, there is nothing more powerful than saying we have deployed this inside HP,” said Ann Livermore, executive vice president in charge of HP’s server, software and services business.

Communication style

While Hurd has given his managers more authority and makes them more accountable, his cell phone seems glued to his ear as he constantly checks in with them for brief chats or leaves voice-mail messages.

Satjiv Chahil, the marketing guru of HP’s PC business, got an inkling of Hurd’s style his first day at HP in September 2005. “So what’s our message?” Chahil recalled his new boss asking, getting right to the point. Hurd was interested in Chahil’s ideas to rejuvenate HP’s staid PC brand.

Hurd made other key hires to round out his inner circle. Todd Bradley, the senior vice president in charge of the PC business, joined in 2005 from palmOne, where he was CEO. Among HP’s businesses, the PC division has seen one of the biggest turnarounds, surpassing troubled Dell in market share and improving profit margins. Bradley sees big growth potential for HP in mobile, connected devices.

“The key difference vs. 2 1/2 years ago is we focus on both costs and growth,” said Bradley, who joined HP in 2005.

An ad campaign for PCs developed by Goodby, Silverstein & Partners, “The Computer Is Personal Again,” featuring fashion designer Vera Wang, Olympic snowboarding gold medalist Shaun White and others, has received kudos in the PC and advertising industries, helping make HP’s brand seem cooler and hipper.

“The concern two years ago that they could never hold up against Dell has gone away,” said Carl Claunch, an analyst with Gartner.

To boost growth in its lucrative printing business, which accounts for more than half its operating profit, HP is creating new services and technologies. Vyomesh Joshi, senior vice president of HP’s imaging and printing business, said the company is now bent on moving from “printers to printing.” As one example, he cites HP’s acquisition in 2005 of Snapfish, a digital-photo-printing service that lets consumers order photos over the Internet and receive them at home or pick them up at Walgreen’s or at retailers’ photo kiosks. HP also has targeted professional-class printers for businesses as another area of expansion.

Its recent purchase of software maker Tabblo is aimed at improving – and spurring – the printing of pages from the Web. “We want to capture not only pages from the PC, but from the Web,” said Joshi. “You don’t want to just think about printers shipped, but how many pages are being printed.”

Room for improvement

One of HP’s biggest challenges remains its corporate server, software and services business. It includes low-margin commodity servers, aging product lines, as well as the faster-growing software and services businesses. In 2006, HP lost market share in servers while rivals Sun Microsystems and IBM added share.

“We haven’t seen much of a change in systems,” said John Fowler, executive vice president of systems at Sun. Hurd “hasn’t figured out a way to fix it.”

But as HP continues to cut costs, it’s looking to invest more in some key areas such as software. Since the beginning of 2006, HP has purchased nine software and service companies, including Mercury Interactive, a developer of application-testing software. Analysts estimate HP will add nearly $1 billion in revenue annually through acquisitions.

Revenue targets

HP’s goal is to consistently increase sales by 4 percent to 6 percent a year, hitting $100 billion in revenue in fiscal 2008 – no small feat for a company that size. Some analysts now are focusing on HP’s hefty earnings growth instead, but many also hope HP over-delivers on its targets. The current consensus on Wall Street is for HP’s revenue in fiscal 2007 to grow 8 percent, slowing down to 5 percent growth in fiscal 2008.

“While HP must ultimately make the transition to growth, we see additional opportunities for cost reduction … and potential for stronger growth,” Andy Neff, an analyst at Bear Stearns, wrote in a recent report.

By many accounts, Hurd has instilled a fear of complacency within the company.

So when HP inched past IBM in sales recently, there was nary a twitter in HP’s cubicles or executive offices. “We think that once you start high-fiving, then you are showing that you are weak,” Livermore said.