Powering Down

 | Oct 10, 2013 | 10:30 AM EDT
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May 23 was the last time I looked at Hewlett-Packard (HPQ). I was doubtful the shares could go much higher, since the stock had already jumped 50%.

Since then, HPQ is down 8% -- and that's after yesterday's 9% pop. Hewlett-Packard has been a terrible investment. The stock's price had fallen about 43% in the last five years. But optimism reigns supreme among the investment community. Investors have been betting that CEO Meg Whitman will be able to turn the beleaguered company around. Most value investors have their sights set on $30 a share.

The company held its annual analyst meeting yesterday and I sat through just enough of it to figure out that it was more of the same. The shares surged higher when Whitman told analysts she saw "pockets of growth." She said the company would return to growth in fiscal 2015. I remain skeptical that Hewlett-Packard can turn around its fortunes without serious restructuring.

Hewlett-Packard remains dependent on the PC business. Last week, research firm IDC said it expects worldwide PC shipments will drop 9.7% in 2013. And if that wasn't enough, the market is expected to decline through at least 2014. And just yesterday, Gartner said the PC business declined 8.6% to 80.3 million units total. That's the lowest number of PC sold in a quarter since 2008. It's the sixth quarter in a row the PC business has declined.

To me, Hewlett-Packard has to ditch its PC business pronto. If management plans to keep the PC business, then the stock is overpriced. With the PC business, the stock is worth $17-$18 a share.

As I reported in detail in my last article, the third quarter was a mess. PC sales were down 20%, consumer revenue declined 29%, total PC units fell 21%, and server revenue was down 12%. Those macro trends are too tough to overcome. HP needs a new growth engine and it has to be large enough to take the place of the PC business. Unfortunately, that's a tall order and nothing can replace the PC business right now.

I would stay away from HPQ for the foreseeable future. I can't find a way for the company to get out of the predicament it is in. Never mind the "pockets of growth," Whitman mentioned. Hewlett-Packard has empty pockets.

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