H-P Is a Helpless Giant

 | Feb 23, 2012 | 1:26 PM EST
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Lot of winners, one big loser. That's how I feel today about Hewlett-Packard (HPQ), where virtually every division seems to be in free fall and the vultures are circling everywhere.

First, we tend to forget that Hewlett-Packard is huge, a $120-billion-in-sales company that has its tendrils deeply rooted in the corporate market, but also has a substantial consumer business through printers and personal computers.

Second, we tend to forget that companies can get in tailspins that they can't recover from. Witness the stunning declines in Nortel (NT), Nokia (NOK) and Research in Motion (RIMM).

Third, Hewlett-Packard has a tremendous amount of debt and has used a gigantic amount of capital to foolishly buyback shares.

Fourth, previous CEO Leo Apotheker spent money like a drunken sailor with a terrible $10 billion dollar overpay for an information management software company, Autonomy, that really drained the corporate coffers

Finally, right before he was fired, Apotheker announced that Hewlett-Packard was debating abandoning the personal computer business.

Add these up and you have a company that seems about to be carved up by IBM (IBM), Oracle (ORCL), SAP (SAP) and Accenture (ACN) on the underinvested consulting side, and by Dell (DELL) and the low-cost Asian companies on the personal computer and printer side.

Enter Meg Whitman. While she has a pristine reputation, her actual operating history at previous employer eBay (EBAY) was distinctly mixed. She had grave troubles taking the company to the next level. She also made a serious mistake when she came in, casting an extremely rosy picture of the business before she even had a handle on it. The stock had crept up in part because we figured she had to know something about how well the company was doing or she would have kitchen-sinked, meaning taken huge writeoffs, cleaned up the biggest messes and given herself some time for this massive turnaround.

Today what did she offer? Perhaps a vision down the road of a value added software and consulting company? Given the crowded nature of that field, with well-financed powerhouses already staking out the turf all I can say is good luck with that. A vision of cost cutting? The one thing that Mark Hurd seems to have done really right at Hewlett-Packard was to cut costs to the bone. Apotheker was so horrible that he also may have feather bedded during his miserable regime, but I think the biggest problem with Hewlett-Packard is that underinvested and not overinvested in the core businesses. Whitman paid lip service to the need to innovate, but lets really be brutally frank, what does she know about innovation? I see nothing in her track record that would tell me otherwise.

Hewlett-Packard is a gigantic colossus that I now regard as a pitiful helpless giant ready to be eviscerated by all comers. Too big to be taken over, too hobbled to be broken up, too lifeless to advance. 

I would stay away from the stock and actually accumulate some of its competitors, something that started today with IBM's breakout, as I expect the vultures won't just be circling, they will be eating.


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