Why HP embodies the worst of corporate America
Wasteful multibillion-dollar buyouts, no innovation, a lack of leadership and a bloated corporate structure plague this struggling tech giant.
By Jeff Reeves, Editor, InvestorPlace.com
The market had quite an ugly day on Thursday. But for a brief moment, Hewlett-Packard (HPQ) swam upstream on news that it is working out a massive $10 billion buyout of software company Autonomy. Of course, the gains were fleeting and Hewlett-Packard stock finished the day down, along with nearly every other stock on Wall Street. Some investors were fooled for about an hour, and then the profits evaporated. In premarket trading Friday, it was down 13%.
Thursday's news is a fitting example of how HP is trying to manage its business these days. The 10-figure buyouts. The claims that it is rethinking its role in the tech sector. The blatant flaunting of its massive cash stockpile at a time when companies claim to be suffering from the economic downturn.
Hewlett-Packard is everything that's wrong with corporate America right now, exhibiting stupidity, a lack of innovation, bloated operations and no leadership.
Stupidity. Lots of people thought Hewlett-Packard was delusional when it bought Palm in 2010. At the time, the company didn’t have a hint of self-awareness but instead engaged in the typical hyperbole of a big-name buyout. Check out this gem from the an official press release on HP.com:
"Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices," said Todd Bradley, executive vice president, Personal Systems Group, HP.
Oh, yeah? Well, what about the news Thursday that Hewlett-Packard will abandon any effort to capitalize on the mobile market by killing its tablet computer and mobile phone business based on WebOS, the very gadgets Palm was supposed to inspire? Only can a wasteful, boneheaded corporation like HP make a $1.2 billion purchase during a recession and then give up on that buy a mere 16 months later. (That sounds almost like something Congress would do, doesn't it?)
The icing on the cake: Just this past February after the Palm deal closed, HP made a big to-do about its plan to duke it out with the iPad – and just months after smack-talking, had to eat its words.
In November 2009, the tech giant paid $2.7 billion for routing and digital security stock 3com. Then in September 2010, Hewlett-Packard engaged in a spitting match with Dell (DELL) to buy out data storage and cloud computing stock 3Par – with HP paying $2.35 billion for its "winning" bid of $33 a share, over 83% higher than Dell’s opening bid of $18 a share.
- Related: Is Dell doomed?
Now we have news that the company could be buying British software stock Autonomy for $10 billion, according to reports confirmed by major news sources Thursday.
We’ve already had HP essentially admit the Palm move was a disaster. But even if we take a huge leap of faith and assume those other moves pay off, HP is building its future profits on the work of other companies and the efficiencies it can gain from streamlining operations to maximize margins and profits.
That’s fine if you’re a CEO or executive at the top of the food chain. Not so good if you’re part of the 25,000 workers trimmed in the wake of the 2008 acquisition of Electronic Data Systems for $13.6 billion. Or the 9,000 HP employees let go in 2010, or the thousands of folks who will undoubtedly be terminated as this tech giant "consolidates" operations in the years ahead due to these bloated buyout deals.
Far be it from Hewlett-Packard to grow through innovation and critical thinking -- or at the very least, adapt to the changing landscape and find a way to connect with more consumers and businesses with current offerings. That would require some leadership and some true entrepreneurial spirit.
True, growing via acquisitions isn’t necessarily a bad thing. Lots of stocks do it, and do it well. But Hewlett-Packard is clearly trying to compensate for an utter lack of organic growth prospects and management's inability to grow HP on the merit of their ideas. It's hard to argue that some $30 billion spent on Acquisitions since 2008 is anything other than change as the illusion of progress.
Undoubtedly, board members will argue that Hewlett-Packard is trying to diversify its operations to achieve economies of scale and expand their service offering.
"When you're growing, let's just say for purposes of discussion, in the high teens, you can afford to bet in many areas. When you're growing in a lower number -- just for purposes of discussion, let's cut that number in half -- you can't afford many of the areas. So we're going to cut back on the number of priorities, get very focused on our top five (and) grow it through."
There’s nothing new about good corporations getting a little too fat and unfocused. Heck, even Wall Street darling Apple (AAPL) had its moment of corporate disarray. The iconic tech company was on the verge irrelevancy in 1997 before it called Steve Jobs back to the corner office. But as you can watch Steve Jobs say in his own words in this YouTube video (the speech starts around the 7:00 mark), while "Apple’s not as relevant as it used to be everywhere, but in some incredibly important market segments, it’s extraordinarily relevant."
In short, Steve Jobs didn’t save Apple by rethinking the company but returning to its roots and focusing on what it did best. Neither did Howard Schultz overthink things when he came back to streamline Starbucks (SBUX), and if John Chambers keeps his job it will be because of what he cuts - not what he creates - in the months and years ahead.
These CEOs didn't have to catch lightning in a bottle. They simplified things, and returned the companies to growth by using addition by subtraction. Innovations like the iPhone or Via instant coffee came later, as a result of a renewed corporate mission and less "noise" in the board room.
Unfortunately, HP hasn’t gotten that memo. Instead, it continues to spend increasing amounts of money for the next big thing – not realizing that too many big things will actually cave the roof in.
The company announced a $10 billion buyback in 2010, and executed over $4 billion of that plan. Just weeks ago it announced plans to buy back another $10 billion in shares. Yes, HPQ had a $12 billion in cash as of this spring… but where is that money coming from in light of this $10 billion buyout deal unveiled this week? Was the buyback plan just a PR move to cheer up investors?
In earnings Thursday, Hewlett-Packard lowered its revenue forecast for the year, which hurt the stock. But more disturbing was the sideshow that surrounded these announcements. After rumors surfaced that HP was considering spinning off its PC business, the company confirmed talks with a surprise press release – that just so happened to dropped the bomb about killing its its WebOS mobile business on top of disclosing earnings about a half hour before its scheduled time to report numbers.
Who the heck is running this operation?
That question has been asked many times in the last several years. Carly Fiorina was forced to resign as chief executive officer and chairwoman in 2005 following "differences (with the board of directors) over how to execute HP's strategy," according to a corporate press release. Funny to think they had one, given the way things have shaken out.
Then in 2010, CEO Mark Hurd resigned amid controversy over sexual harassment claims and shenanigans over expenses - which managed to overshadow his silly buyout of Palm, among other interesting moments in his tenure.
It’s one failure in leadership after another. And this leadership vacuum is perhaps the most disturbing things for shareholders. Because until HP gets some adult supervision, it will continue to make stupid and lazy business moves – and share prices will continue to suffer.
HP bad company. Just think, if we had HP running the country what they could do for our economy. There seems to be this mantra about people in business making good political leaders. Look at how HP is managing to snatch defeat from the jaws of victory.
I have HP printers and they work fine. I also have an HP laptop and it too works fine. But try to get help with a problem, that does not work much at all.
In the end, HP will be just another W T Grant or other faint memory of a once successful company that screwed itself into the ground.
the CEO's sure gathered a lot of CASh though, didn't they?
~ laughing ALLLLLL the way to the bank!
Problem is the board members thru out America, in corporations, school districts, towns, counties, they are not liable for any bad decisions or losses, they are shielded.
Corporate board members often are executives of some other corporations, they are scratching each others backs.
With towns, school districts, board member are relatives of employees or they have some other conflict of interest that is not illegal, but highly unethical; this is why our property taxes have shot thru the roof.
How do you fix the problem:
Board members of corporations should be selected randomly from a pool of share holders.
With towns, school district board members - no relative can sit on the board, or conflicts of interests are not allowed. Here too some board can be selected randomly from a pool of home owners who actually write the property tax check.
In NY & NJ metro area, property taxes are $1000-$2000/month for an average house, Public school teachers make up to $150,000/6-9 months of work, police around same, Police Chiefs & School superintendents make up to $500,000. They can all retire by early 50's and collect pensions $100,000- $350,000 for the rest of their lives and their spouses lives.
No wonder corporations and government are in such bad mess, there is no accountability or ethics any more.
The CEO's of multinationals are like the royalty of Europe 200 years ago: Used up and inbred. They should all be fired and blacklisted for 10 years. It is a system of cronyism where they reward each other for incompetence. They should at least each have to take a pay cut equal to the sum of wages of everyone they lay off.
If HP doesn't want to be on my desktop, it won't be in my server closet, either.
I snapped up HPQ shares at what must have been the worst Friday afternoon price of $23.69 and I still feel like I stole the shares at a P/E of 5.8 and Price/Cash Flow of 4.3.
I believe the author has a valid point in terms of HP needing to focus on a few things and doing them well (ala Apple, Starbucks, etc.). With that being said he doesn't seem to understand the point of this (selling PC division / Palm and purchasing Autonomy) being one of the steps necessary for HP to do exactly that. In few years the author will look back at this article and say oops. HP hires an SAP guy as their CEO and it shouldn't surprise anyone that his past experience is in line with HP's apparent future strategy...Enterprise Software and Services. I'm sure reshaping HP in this manner is exactly what was discussed with the board during the interview process of their new CEO and is the exact reason they went with him. The purchase of Autonomy is an extremely strategic fit in line with the 3Par purchase that was executed after Hurd's oust. 3Par gives HP a strong hold in data storage scalability and availability required for Cloud Computing. Autonomy gives HP a strong hold of SSAS companies that need to identify patterns and associations out of unstructured data. Anyone with a background in any type of CRM / ERP / Business Intelligence background (see new CEO) knows that solving problems associated with unstructured data is the key for future innovations in these areas (along with social networking and a host of other high growth opportunities). Dropping low margin initiatives that may not even be relevant in their current form in the next 10 years (e.g. personal computers) that don't fit in with their future business strategies and instead focusing on strategic acquisitions that will further enable them isn't a bad idea...it's good business. Please note...I'm not a shill for HP nor do I own any stock :)
I am old enough to remember when HP was the top of the line electronic equipment manufacturer. If you wanted quality equipment, you bought either Tektronix or HP.
To see the company fall apart is sad for sure.
No I would never buy a HP computer, I do have a HP printer that works ok, but has constant software glitches that require constant patch downloads just to get it to work at all. And the cost of the ink cartridges is sky high. May be this is how they are staying afloat.
BTW, I have had good luck with Dell computers in the past, for example I am writing this on a Dell laptop I bought in 2005 that still works just fine and I leave it on 24/7.
Yeah, HP sucks on ice. Their laptops are horrible; everyone I know who owns one has had serious problems, myself included. I had my new laptop barely 9 months before the hard drive crashed and died completely. My niece went through 4 hard drives with hers. If this is what America puts out, no wonder we're circling the drain, bless our hearts.
Most of their manufacturing sites include thin HP Pavilion Notebook computers are not built by in the United States, they are built by contractors or sub contractors in the usually China.
So its not America putting things out its what America does best for the past 30 years, outsource.
There are some printers that are assembled in the US-- all parts from around the world.
Sorry to disappoint you, but most of America doesn't put anything out anymore. Very few things: Food, bathroom soaps/shampoos, and cosmetics LOL! Those items tend to be manufacutred in the US.
I'm not impressed with HP at all. From personal experience I have a network printer from them. The PC that has the HP printer software loaded on it runs slower because of it. I was looking to replace my laptop a few months ago. I tried one of their new models. I placed the order it arrived. All was good until I powered it up, and determined that the hard drive disk space was not the correct size. I initiated a service call, and told HP what they'd done wrong. I have built a few PCs of my own; so it wasn't all that difficult to figure out what they had done.
During the next 10 days of repeated contact with their support no solution was forthcoming. Support seemed satisfied to read the scripts out of the manual, but of little assistance in escalating to someone who could. I asked for a full refund, and purchased a similarly configured replacement from a competitor, and am totally happy with it. In their defense if that's what it could be called, they contacted me some 30 or so days after I'd returned it indicating they'd finally figured out what was wrong with their laptop. Too late folks. I can only indicate that when their printer dies, it's out of here too.
Copyright © 2014 Microsoft. All rights reserved.
As the economy picks up steam and baby boomers retire, sales of recreational vehicles are making a comeback. Here are 3 stocks to play the trend.
VIDEO ON MSN MONEY
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.