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 InvestorPlace Aug 19, 2011 8:00AM

By Jeff Reeves, Editor, InvestorPlace.com


investorplacejeff reeves msnThe 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.


Lack of Innovation. Unfortunately, the $1.2 billion for Palm is just part of a spending spree fueled by HP executives with too much money and a desire to spend it without thinking.

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.

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.


Bloated and getting fatter. So in under two years, the company will likely burn $16 billion on four multi-billion buyouts that cover consumer tech, data storage, networking and enterprise/search software.

Undoubtedly, board members will argue that Hewlett-Packard is trying to diversify its operations to achieve economies of scale and expand their service offering.


Of course, those folks should probably stop justifying their behavior and listen to companies like Cisco (CSCO). I’ll let CEO John Chambers do the talking (taken from this report on CNBC):


"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.


No leadership. Perhaps most damning is that HP is an asylum run by the inmates, with varying degrees of delusion and plain craziness across some of its biggest moves lately year.


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.


Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


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21Comments
Aug 19, 2011 3:17PM
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I work for HP in software and the leadership is awful. They have been allowing a mass exodus of the best people with an eye that they will replace them in the "low cost geo's" or not at all. The problem is that you can replace a person, but not their knowledge. They have a curios and devastating policy of giving "promotions" without the corresponding uptick in compensation. So you get a fancy new job title and a ton of new responsibilities, but no more pay. Now this would be OK, I guess, if you knew it going in. HOWEVER, HP pays according to salary ranges associated with the job code of your position. So if you are job code L12, depending on your geographic region, you are supposed to be paid between 60-70 K a year for instance. They will change your job code, but they won't bring your pay into "alignment" with it. Even when pointed out, they still say it must go through a vetting process to determine if you really deserve a "raise". So they always deny it saying the earning for the previous quarter are too low to raise labor costs right now. Then they string you along for months/years (depending on your tolerance) until you quit. Then they come running after you saying "what can we do to make you stay"? Of course, if you have self respect, you say nothing, your disdain for me until now has soured the relationship, besides, I've already accepted another companies' offer. And out the door you go. This has happened so many times in my epxerience, and it's always the best brains walking away, because they of course are the most desirable to other companies. This practice is absolutely killing the company. The best leave, the dregs stay, and the whole operation is going to $hit.
Aug 19, 2011 6:11PM
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Don't forget to blame Obama for all the job losses from HP, he gets blamed for everything else.  Give HP credit, they really know how to kill a business and jobs.
Aug 19, 2011 6:10PM
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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.

Aug 19, 2011 6:19PM
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the CEO's sure gathered a lot of CASh though, didn't they? 

 

~ laughing ALLLLLL the way to the bank!

Aug 19, 2011 3:02PM
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Mark Hurd was awful at best.  The purchase and gutting of EDS, the Palm purchase.  They seem to have no direction, or clue as to what they are doing.
Aug 19, 2011 12:07PM
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Mark Hurd is the only decent CEO HP has had in 2 decades. Leo A is a mediocre CEO with mediocre credentials and a software company skill set.  Fiorina ran them into the ground and needed to be fired....all she did was feather her own nest and that of her friends while she was there. HP needs a new board that can hire the right leadership......LEO is going to ruin that company.....just look at the bonehead way they are even handling disclosure since he was on board at HP.
Aug 19, 2011 7:14PM
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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.

 

Aug 19, 2011 3:37PM
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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.
Aug 19, 2011 11:29PM
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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.

Aug 19, 2011 3:52PM
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I had a custom Desk Top made full boat system to the tune of $1700.00 Plus and when it had problems I was put off tell it was out of warranty.Then I was told I had to give them more money to fix it. Needless to say I wont by any more PC from HP.   PS I have Two new Laptops,you lost out HP good by and I wont say good luck.Disappointed
Aug 20, 2011 9:45AM
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I bet the executives are still getting multi-million dollar bonuses and stock options taxed at a 15% rate for their great talent.  As far as innovation - why try something new when you can make money doing what you did yesterday.  That's the mantra of all the great executive 'Job Creators' in this country.  Squash the innovation, buy a rider making it illegal and do what you did yesterday. 
Aug 19, 2011 10:43PM
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And meanwhile, with this apparently worse-than-idiotic leadership, HP has managed to overtake every other company - including the well-led-by-Chambers Cisco- in server sales, also leads the world in PC sales  with 2.5x Apple's, is sitting on a ton of cash, has an annual -and growing- positive cash flow of $13.6 BILLION, and has a near 25% return on equity.  Yeah, it's "struggling"!

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.
Aug 21, 2011 7:28PM
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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 :)

Aug 20, 2011 9:48PM
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Proof positive.... "Where have all the leaders gone?" -- Mr. Lee Iacocca.  Folks business is the same as it always has been. I believe anyone who is in management positions or aspires to be in management should have to read Mr. Iacocca's book titled "Where have all the leaders gone?" More and more folks out of college nowadays are placed in top positions for which they are not ready for. They have no clue. And as Mr. Iacocca said, "A leader has to have common sense, and if you don't know a dip of horse poop from a dip of vanilla ice cream you are never going to make it." Our corporate leaders need to get it together. NOW.

Aug 20, 2011 3:06PM
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Due to this latest news on HP, I've purchased my last product from these fine folks. The truth be known the true earnings driver for HP is the ink cartridges for the printers. Recently was shopping for a computer for DD and went with Apple. AND was provided a FREE Epson printer as part of the deal that has run flawlessly, The fact that HP choses to go to battle with IBM makes no sense to me. Whoever buys the printer business will be buying an entity with tremendous cash flow. The PC business has become more of a commodity business but IMHO their is room at the top end of the notebooks and laptops. But look around GE sold it's "plastics" division for "peanuts" because it was a no-growth business. My thoughts are that with cars needing to become more effecient (a.k.a lighter) plastics would be the "sweet spot" for growth. BUT instead they chose to direct their energies to financials and made themselves "a Bank that sells light bulbs"....
Aug 20, 2011 8:22AM
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Sure glad I saw this and the posts was looking to buy a HP will stay w/Dell. Thanks.
Aug 19, 2011 8:49PM
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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.Surprised

 

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.Smile

 

 

Aug 19, 2011 8:06PM
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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.

Aug 20, 2011 9:51PM
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To MSNBC.... You cowards. I tried to quote Mr. Iacocca verbatim, and instead of telling me that I cant use the 4 letter word for poop that begins with the letter "S", you told me there was a "problem posting comments right now. Try again later." What a bunch of wussies. Just tell me I cant say S#it!!!
Aug 19, 2011 10:28PM
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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.

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