In The News Again
Naomi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
To many people, including investors, it would not be surprising that Hewlett Packard (NYSE: HPQ) is in the news again. Recently, the company found itself under investigation by the U.S. Department of Justice. The investigation is concerning the allegations that Autonomy, the British software firm it acquired recently, engaged in accounting malpractices before it (Autonomy) was acquired by HP. It is old news that the board of HP, after paying for the acquisition, realized that the company was actually misled into overpaying for Autonomy. While several shareholders are suing HP over this fiasco, the company is transferring its aggression to Autonomy and its auditors, KPMG and Deloitte, by suing for damages. The company believes it made the blunder because it relied too much on the report from the auditors.
HP reportedly wrote off $8.8 billion to take care of the problems associated with the company it acquired. This is not the only acquisitive blunder that the company has made in recent years. In September 2010, the company paid $2.35 billion, which amounts to 200% acquisition premium, for data storage company 3Par. HP was engaged in a fierce bidding war with Dell (NASDAQ: DELL), its known rival in the desktop computing industry. This acquisition was also overpriced, and at a point, it was being insinuated that Dell was being used as a bait to make HP pay more than the real value of 3Par. This acquisition was made at a time when the company did not have a proper CEO directing its affairs. Dell, currently trading at $10.91, just unveiled its new Latitude 10 essentials configuration that is geared towards offering a full-featured and enterprise-ready Windows 8 tablet experience to schools and small businesses that are on budget without compromising on quality and ease of use. The price of the tablet is below $500
This acquisition of Autonomy was actually the brain-child of Leo Apotheker, the company’s CEO from November 2010 to September 2011. He had plans of transforming the company from a desktop computing firm to a cloud-computing and data storage solutions company. Apotheker was following in the footsteps of the management of IBM (NYSE: IBM), a company that rose in 2005 from a desktop computing giant to a data storage company and is now experiencing huge growth in the data storage industry. This move could have paid off for HP if only the management had “looked before leaping” in their purchase of the over-valued company, Autonomy, which transaction has been rated as the company’s “costliest blunder to date.” Reports have it that IBM’s services chief, 36 year old Mike Daniels is retiring on March 31 and this comes as a surprise because Daniels is a man that was once seen as a potential CEO candidate in IBM. IBM is currently trading at $192.32.
After Apotheker’s departure, Meg Whitman came on board. In the company’s bid to salvage what is left of the company, 27,000 workers were laid off in May 2012. Even after this, the company’s revenue slid 7% to $30 billion as it reported a GAAP adjusted loss of $6.41 per share. One bad thing is that it does not affect the company alone since shareholders are suffering along with them. With the departure of Mark Hurd in August 2010, a man who is regarded as the turnaround CEO of the ailing company, the stock price has slid almost 70%. Not helping matters is the current trend in computing needs that has turned the attention of most consumers to the use of mobile devices like the iPhone and iPad from Apple (NASDAQ: AAPL) for their computing needs. Apple is known as the tech giant in the mobile device industry and a company that has continued to make waves even as its stock suffered a considerable decline recently
Apple’s 8GB iPhone 4 sells for not less than $450 unlocked and the 16GB iPhone 5 for not less than $649 in the US and up to $955 in Italy, could be adding extra billions of dollars to its annual sales if it finally succeeds with its plans of manufacturing a cheaper iPhone. Reports show that the intended cheaper iPhone, although a replica of the more expensive iPhone, would come with a less-expensive body that is quite different from the other models. It might also be smaller in size and would come at a price range of $149-$199.
Finally, if this trend of bungled deals continues to be part of HP’s history, then it surely spells more trouble, not just for the management of the company, but for the investors as well. I pray that the next time HP is in the news again, it will be on a positive note.
Chizy has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!