Should we Expect Anything Positive from HP?
Joel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Well, some experts say yes. But I think most people would think otherwise, especially after the company wrote down $8 billion due to the failure of its services business. The company finally admitted that they had paid too much for the failing EDS acquisition.
HP’s onetime expenses have left the company hungry for funds. Hewlett-Packard (NYSE: HPQ) has to bear a huge pretax cost of $1.5+ billion and another quarter billion toward severance pay to recently sacked CEO Leo Apotheker. With the quarterly revenue dipping by almost 3% amidst such tough times, things seem too bad for this PC behemoth.
Too many mistakes committed
The list of mistakes HP has made seems to be never ending. The acquisition of Palm and Autonomy both failed, bringing huge losses. And then came the EDS deal in 2008, which Hurd, the former CEO, had said would be a “thrilling” experience, turned out to be a rather “shocking” one. If you know what I mean!
What lies ahead?
Definitely a lot of expenses. Firstly, cash sunk in the lawsuits against Oracle (NASDAQ: ORCL) (and probably much more to lose in future). Secondly, a lump sum on severance pay and restructuring charges. But there are many things to cheer about. CEO Meg Whitman says she is optimistic about a turnaround within the next three to five years. Three to five years! Are you kidding me?
That translates to light years for any tech company. Who knows whether Whitman will herself be there to witness that revival by then (keeping the company’s former CEOs’ departures in mind). Sorry Ms. Whitman.
The PC industry has shown significantly sluggish growth. The demand for tablets is growing by leaps and bounds. It will take HP too much time to rev up its R&D department (which almost died during Hurd’s rule) to match the likes of Apple (NASDAQ: AAPL) or Google (NASDAQ: GOOG).
The age old cash cow, the printing business now seems to have run dry. Sales in HP’s services business failed to show any significant growth last fiscal year, rising 1.2% to $36 billion. The division grew less than 1% in fiscal 2010. The lawsuit filed against Oracle was yet another blow to HP.
Feigning optimism won’t help
The company has projected growth but that’s too little. It raised its earnings expectation slightly for the next quarter from 94 to 97 cents to a dollar. I call it nothing when compared with the current growth rates companies are experiencing in the smartphone and the tablet markets.
HP’s attempt to enter an area like cloud computing might sound promising, but given the R&D, it seems all ready to go awry. The PC division (30%) is already sick. And the printing business (20%) is almost in the same condition. With almost 50% of the business under stress, restructuring the company can’t be the only solution. What HP now needs is solid growth to generate good revenue to pull up its stock. And I don’t see how it can do that.
To put it simply, betting on HP is looks like placing your money on a blind horse. He will not win the race (proved before through the various project failures). What do you think?
Please feel free to post your comments below.
rahelg has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Oracle. Motley Fool newsletter services recommend Apple. 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. If you have questions about this post or the Fool’s blog network, click here for information.