Hewlett-Packard and the Gathering Shorts

By Karen Rogers - September 14, 2012 | Tickers: DELL, HPQ, IBM, MSFT | 0 Comments

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If I hadn’t come across Hewlett-Packard’s (NYSE: HPQ)  announcement that the company had just released four new computers, I never would have known.  The computers are part of Hewlett Packard’s AiO, or all-in-one line, which uses touch screen and one cord technologies.

What did catch my eye, however, was news that HP was firing 29,000 employees instead of the estimated 26,000.  Last week Dell (NASDAQ: DELL) announced they would be cutting jobs,  perhaps in response to their stock price hitting a new low of $10.48.  But Microsoft (NASDAQ: MSFT) is hiring more than 1,000 employees in China and adding another 15% investment in their mobile R&D.  IBM (NYSE: IBM) continues to hire new employees for its worldwide team.

So what have Microsoft and IBM done so much better than Hewlett-Packard and Dell?  Two things: product diversification and marketing, the results of which are evident in the financial health of each company as shown below.

Product diversification can add new sources of income and provide a cushion against economic downturns.  Windows, Internet Explorer, the Surface tablet, Windows Phone, Xbox, Skype, Bing, Hotmail, MSN, Cloud and, of course, PC software are some examples of Microsoft’s diverse products.  IBM offers a software stable that includes DMS, FileNet and Lotus; point-of-service and self-serve retail products (in the old days we called them cash registers), PC hardware, printing systems and supplies, internet threat mitigation, Cloud computing and other products.

Dell and Hewlett-Packard’s product diversification is PC-centric, a sector trapped in a perpetual decline.  Their diversification consists of laptop and desktop computers, printers, monitors, parts, electronics and services.  Hewlett-Packard also sells ink and toner, software, calculators and scanners.  The failure to successfully diversify into different sectors is a primary reason for their declining market share, poor financials and falling stock price. 

See the IBM logo and instantly “Big Blue” comes to mind.  Think of Microsoft and Windows, the company’s flagship product, comes to mind.  Think Intel, and the dot-dot-dot-dot jingle chimes in your head.  It’s marketing people remember for products people will want to buy.  

Hewlett-Packard and Dell marketing never clicked with consumers, but of the two, Hewlett-Packard is the best short candidate.  Where was the hoopla and fanfare for the new computers the company just released?  What would make me want to buy one?  The layoff announcement got more media attention, and therein lies the first reason to short the stock:  poor product marketing.  Consumers knew about the new iPhone and Surface tablet months in advance, so why did Hewlett-Packard keep their new computers a secret?

Hewlett-Packard’s ongoing management problems sabotage the company.  CEO Meg Whitman continues to sack employees to cut costs, a self-defeating move at best.  The company’s not just firing lower-level employees, but product engineers and designers, too, the very people she needs if she has any real hope of turning the company around.  This past August, Hewlett-Packard reported their largest ever quarter loss of $8.86 billion and missed Street estimates. 

The final reason to short comes from CEO Whitman’s plan to invest more money in R&D to revamp the company’s PC, printer and server divisions.  With PC sales continuing to fall in the face of mobile computing, what is the logic of throwing more money into a declining sector?  With management decisions like these, shorting Hewlett-Packard never looked so good.

Interested in More Analysis?

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