WHAT’S UP WITH HP? ACTUALLY, NOTHING. AND THAT’S THE TROUBLE…

Annex logo web

[click on images to enlarge]

Screen Shot 2013-08-21 at 6.16.28 PM 

All lines point south. Except stock price. To see real HP, one must turn Wall Street’s view upside down. 

HP Declining ibm

IBM & HP: Two Peas in a Pod

virginia-rometty-IBM Meg Whitman

It has been more than seven years when I wrote the story IBM vs. HP: A Tale of Two Blues (June 2006). If I were to do it today, its title would be “Two Peas in a Pod.” Both computer giants are shrinking. Both are stuck in place while desperately trying to create an impression of change. Neither is able to break the shackles of their corporate cultures. But only one has been favored this year by Wall Street. HP stock is up 78% in 2013 to-date.  God only knows why…

New-York-Stock-Exchange-building         HP logo upside down

Which is why it might be instructive to bring back that image we published a few weeks ago.  There is no room for reason at the Wall Street manger. What’s been happening with the HP stock this year is another proof.

* * *

THIRD QUARTER ON TARGET YET STOCK DROPS

HP’s third quarter results were “on target,” as far as Wall Street is concerned. Yet its stock dropped 8% in after-hours trading. Why? Because investors may be starting to realize that they have been falling for their own hype. Just as what happened with IBM last month.

Screen Shot 2013-08-21 at 6.38.09 PM

In HP’s case, the latest results marked the eighth consecutive quarter of year-to-year revenue and EPS declines. In other words, HP’s downward trend is even longer than IBM’s.

And no wonder. All major HP lines are shrinking. The PC unit was the worst performer in the latest quarter. Revenue dropped 11%. The printer unit fell 4%. Enterprise group and enterprise services each declined 9%.

HP CEO Meg Whitman said on today’s earnings call revenue growth is unlikely before the close of the fiscal year ending in October 2014. That sent the stock tumbling.

Well, at least the HP CEO is being a little more realistic than the other Big Blue CEO.  When IBM disappointed the market with its second quarter results last month, CEO Ginni Rometty continued to promise a turnaround.

“We expect continued improvement through the second half of the year,” she said in a release (see IBM in Troubled Waters Again).

Actually, neither company is doing anything radical enough to constitute real change. Both will need to basically reinvent themselves from ground up if they are really to move up. Neither seems willing or able to do it. Maybe they should spare their shareholders the agony of watching their favorite Big Blues shrink year after year.

We are reminded of a September 2007 luncheon conversation this writer had in New York with Professor John Persival of the Wharton  School of Business.38_UN_24

“Commoditization is driving the growth and (leading to) lower margins,” he said.

To I pointed out that growth and margins needn’t be mutually exclusive.  Creative companies can have both. I cited Apple and Google as examples. “They are experiencing both high growth and high margins,” I said.

The professor agreed.  “All these companies (industrial era relics) used to be Apples and Googles once,” he replied.  “But they lost that edge.  And now they have to choose between growth and margins.”

And then he dropped a bombshell. He said that managing a company to extinction was “a viable low risk management strategy.” (see Globalization Pandemic, Oct 31, 2007).Kodak

Prof. Persival then cited Kodak as a case in point. It was a prescient example. For this American legend founded in 1880 filed for Chapter 11 bankruptcy in Jan 2012. Creditors stand to get only  4¢ or 5¢ on the dollar for their investments and that they’re entitled to be paid before shareholders are. Generally, holders of common stock do not receive anything for their shares when a company emerges from bankruptcy.

See what I mean about saving the shareholders the agony?

By the way, perhaps you have noticed the juxtaposition of the HP logo to help see the real picture at that company today?

HP logo upside down HP logo

What do you suppose missing suffix of “dy” should be? Dy-ing or dye-ing? You decide. 🙂

Happy bargain hunting!

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About ALTZAR
Bob Altzar Djurdjevic is a writer, musician, video maker, thrice-ordained Inca-shaman, geopolitical commentator, business analyst, playwright-producer... He is also founder of non-profit organizations Stewards of the Earth (https://www.facebook.com/groups/gaiastewards) and Truth in Media (https://www.facebook.com/groups/truthinmedia.org/) ALTZAR shares his time between Maui, Hawaii and Scottsdale, Arizona. You can follow his blog at http://djurdjevic.wordpress.com/ and his travelogues at https://yinyangbob.wordpress.com/). Bob had also worked as a business consultant and advisor to top executives of large multinational computer companies for 36 years (1978-2014). He had spent 8 years working for IBM prior to starting his own business in 1978.

4 Responses to WHAT’S UP WITH HP? ACTUALLY, NOTHING. AND THAT’S THE TROUBLE…

  1. Charles says:

    Altzar (the former Bob),
    Your analysis is spot on! Both of the companies are great in many ways, but have clearly lost their way. Having previously been inside of one and very,very close to the other, as they are constructed today, I can’t see either of them ever growing in a meaningful way again. Getting great business decisons made inside of their very stubborn cultures that are too big to move is vitually impossible. In addition, both have lost their former “customer magic”, meaning customers no longer think of them as thought leaders for the newest type of solutions. It will be a long time before they are Kodak-like, but that will surely come if each one is not split up soon.
    Charles

  2. ALTZAR says:

    Thanks, Charles. What both IBM and HP need is a ball-buster at the helm to break the shackles of their corporate cultures. Do either Ginni or Meg strike you as such? To me, they come across as two nice nurses trying to comfort their two terminally ill patients and give them a few more years of life.

    So I am afraid what lies ahead for both these two companies is a long slide before either is a “buy.” It could end up being a slide into oblivion, just as in Kodak’s case. Or they could get split up and their assets sold off, just as you suggest.

    • Charles says:

      The way I see it is that Meg is no “Carly” and Ginni is no “Sam”. However, the overall issue is not their talent or drive or toughness in my opinion. To use a spin on a popular banking industry term, both companies are “too big and too complex” to grow. In the past Carly got blamed for a very disfunctional Board and a culture that fought her tooth and nail. I doubt that Jack Welch could have made HP work any better than Carly given the hand she was dealt. As the old song says, “Breaking up is hard to do”, but that is what must happen. At least I know Neil Sedaka agrees with me!
      Charles

  3. ALTZAR says:

    I am with you on the break up idea. In fact, I suggested that back in 1996 and again in my latest piece on IBM (see “Break Up IBM!” – http://djurdjevic.com/Bulletins/ibm-corporate/96-19.htm, and “IBM in Troubled Waters Again” – http://djurdjevic.com/2013/Bulletins/06IBM%20Forecast.html).

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