What Will it Take to Turn Hewlett-Packard Around?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hewlett-Packard (NYSE: HPQ) has been in a 30 month bearish trend. There are numerous reasons why it has ended up like it has, but the big question is this: What will it take to turn the company around?
The company has not made good moves over the last decade now that we have hindsight on the company. Some major acquisitions over the years have really brought the company down.
Compaq Computers was bought in 2001, which made HPQ the largest PC company and a huge threat to competitors like Dell (NASDAQ: DELL) and IBM (NYSE: IBM). While on this journey, the PC market peaked and was in the beginnings of a descent after a wicked price war. The acquisition cost the company in a market in which it was getting harder and harder to make a decent profit. In April 2010, the near bankrupt Palm was purchased and intended to be used to open up the fat growing mobile market for the company. Its third purchase last year was enterprise software maker Autonomy (at a hefty price of $10.3 billion). Here the company will compete against the likes of Salesforce.com, Oracle, and IBM. How will this fare in the long run?
The company has struggled with its identity crisis. Under Apotheker, Hewlett-Packard discontinued products that run WebOS software, which is backtracking from an announcement he made earlier in the year about putting WebOS software on every Hewlett-Packard computer. The operating system runs the company’s TouchPad tablet and a range of smartphones. It ousted its then-CEO Leo Apotheker in September of last year after investors criticized the Autonomy deal, along with reduced sales forecasts and a short-lived plan to spin off the company’s personal computer unit. (Lynch left HPQ just after it agreed to acquire Autonomy for $10.3 billion last August. Hewlett-Packard said in May that Lynch, 47, would leave the company following a decline in license revenue at the Autonomy unit, which specializes in helping corporate clients sift through and analyze large volumes of data)
Current CEO Meg Whitman, who quickly canceled the proposed spin-off, is presently directing spending toward products for cloud computing, data security, and information management that could reduce HPQ’s dependence on lower-margin hardware businesses. As expected, trying to turn the company around, she has already started downsizing, announcing 27,000 layoffs that will take place between now and fiscal 2014. She is also in the process of the PC and printer merger, which makes perfect sense for both consumer oriented divisions. But what else can she do? She is not the first CEO to cut costs at the company. Layoffs look good short term. But to see something change over the long haul, it is going to take more than that. HPQ needs innovation! Where does it go, what does it do? Mobile is the wave of the future. Hurd bought smartphone maker Palm in 2010, but Apotheker shut the business down. Consumers love their iPads and iPhones from Apple, and HP is suffering as a result
At such a low price, it is hard not to jump into the stock. We are talking about Hewlett Packard here—a stalwart of the markets. This is a company almost touching its all time low. Do investors follow a herd mentality? If it is such a bargain, why aren’t investors flocking to it right now? Do they believe it can turn itself around? Value has yet to be created at the company and investors see this.
Unless Whitman's changes on the organization chart actually lead to a renewed spirit of innovation at a company that used to have the tag line of "Invent," then the best thing people will be able to say about HP is that it's a widows and orphans stock for the 21st century.
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