Chasing Value: HP renovation or tear down?

Having lost its way, the fabled technology company tried to buy innovation with disastrous results.

By MSN Money Partner Dec 12, 2012 1:40PM

Image, Dollar sign on keyboard copyright CorbisBy Sheldon Liber


Hewlett Packard (HPQ) has once again been the bearer of bad news with its recent announcement of an $8.8 billion charge and an allegation of fraud in connection with its acquisition of British software company Autonomy. HP has been clueless, or perhaps rudderless, for the past four years, shedding dollars, executives and good will. Even with an illustrious board of directors -- "big names" like Marg Whitman, Marc Andreessen, Raj Gupta and Raymond Lane -- the losses keep piling up.  


On the brink of ruin, Apple (AAPL) brought back Steve Jobs, its founder and a natural-born innovator, and that's what he did -- innovate. He did it like few before him, and as yet, no one after him. Jobs was a rock star, insightful and in tune with technology and popular culture. Unfortunately Mr. Hewlett and Mr. Packard are not around today. Trying to buy innovation is a risky game. HP paid big and, by its own admission, has nothing to show for it.


HP is missing something critical -- the insight and passion to innovate. In the absence of innovation it’s trying to migrate to a different business model. Does this mean expanding into software to compete against Oracle (ORCL) or into services to compete against IBM? HP needs outside intervention and perhaps it needs to be broken up. There are rumors about Carl Icahn that stimulate the imagination. It was Icahn who bought into Motorola and pushed to break it into two, resulting in the sale of Motorola Moblity to Google (GOOG). 

HP closed Tuesday at $14.26 -- a long way from its 52-week high of $30. It is not worth considering metrics like price-to-earnings, price-to-sales and price-to-book when the figure jumping off the page is the 41% drop in return-on-equity. With over $11 billion of cash on the balance sheet HP does have a little time to set things right, especially if Icahn is in the picture. On the other hand, this will only benefit new shareholders speculating at current stock pricing, not older shareholders that have been crushed.

 

Sheldon D. Liber is the CEO/CIO of Chasing Value Asset Management, Inc., financial author, and private investor. You can follow him on Twitter: @chasingvalue

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
TWXTIME WARNER Inc10
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.