Hewlett Packard Misses Mark Hurd

Hewlett Packard (HPQ) misses Mark Hurd badly. The company’s shares have taken a nosedive since the former CEO’s departure and the company lacks any direction whatsoever. Under Hurd’s direction HP was a solid $45 to $50 stock with top line growth and growing profitability. The company had bounced back from the awful years under Carly Fiorina. Now the company is in crisis mode all over again and undergoing another restructuring.

HP Stock Hammered

Hewlett Packard stockShares of HP took it on the chin today with the stock dropping more than 20%  today and hitting the $22 range. This stock is down more than 52% since August 5, 2010. That is the day before CEO Mark Hurd resigned after a sexual harassment probe. HP is struggling today because the company needs a strong leader with a smart business plan.

This stock is especially aggravating to me because I believed that the company’s shares were a value in the $30 range. I thought that HP was one of those cheap stocks that would continue to execute its long term strategy. I was wrong!!!

HP Restructuring

HP is trying to transform itself into some sort of software company like a Microsoft. This is a very risky strategy as the company will have to compete against heavyweights with years of experience and established business models. Oracle and IBM are not going to just concede the business software market to HP. The company would have been better served to continue its plan of gaining market share without abandoning its overall vision.

The company is basically giving up on the consumer hardware business and admitted that the Palm purchase was a flop. HP is giving up on Palm’s webOS already. (I always thought that Palm was a better fit for Microsoft than HP). A lot of people believe that Dell (DELL) is the winner from HP’s poor decision making but I think that Apple is an even bigger winner. Apple (AAPL) will sell more consumer products than ever before and will dominate this market.

I am convinced now more than ever that CEO Leo Apotheker has no strategy and that his days at HP are numbered. I would be surprised if he makes it the 12 to 18 months that the strategy takes to execute.

At $22 a share, HP’s stock may be a buy. I have no idea because it is impossible to tell how the company’s new business model will take shape. There are just too many questions surrounding HP

  • Can HP become a major force in the cloud computing business?
  • What will HP’s earnings look like going forward?
  • Can HP integrate Autonomy Inc. any better than the company did with Compaq or Palm?

Until there are answers to these questions I prefer to sit on the sidelines with this one. Warren Buffett would never invest in a company with a questionable business model and neither would I.

My Take: Don’t Buy Hewlett Packard

Comments

  1. avatar Ryan says:

    Kudos to you for putting out a “sell” call right after Hurd left… investors following your advice were spared a pretty ugly year.

  2. avatar krantcents says:

    Although I normally buy mutual funds, this is a no brainer!

  3. I was never really interested in HP, and am even less so now. I really have no idea why they are restructuring in this way, and it makes no sense to me at all. And I’m just a simple middle-class investor. People in bigger circles than I must REALLY be scratching their heads on this one. HP wants to divest their computer and tablet businesses? I know that HP gets revenue in multiple places…but…

    In other news..Coca-Cola is divesting their cola businesses.

  4. avatar Jordy says:

    I guess this is a good example of why Warren Buffet doesn’t like tech stocks. I know I heard him say that he doesn’t understand the sector and cannot see what it will look like ten years from now.

    On the other hand…Coke will still be topping the charts in another ten years!

  5. I would stay away until they figure out how they are going to make money and can prove it. If they don’t figure it out soon, they may just fall apart.

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