One of my longtime friends, an HP 'oldtimer', wrote me last week: "Seriously, isn’t it true that there’s a VERY high level of unhappiness among HP supervisors (at least) since Leo was anointed to “save” the company, by getting rid of all that pesky hardware that none of the Board members used or understood? Grrrrrr"
And I surprised myself when I penned him the following:
No, it is not true across the board. The PC group is pissed, true. And frankly, they had it coming. Apple is 15x better these days. They (HP PCG) have gotten so arrogant and haughty, I found it nauseating. Even some of my best friends... sigh
The Services group is thrilled, frankly, even though Ann Livermore was 'one of the true blue HPers", she was stuck and they'd been screwed bad by Hurd. They love (or at least much prefer) Leo and Ray, partially because they understand relationship selling, and because they restored the salary cuts.
Peripherals (i.e. Printing since HP punted Discs and Terminals a long time ago) hasn't liked anything out of Palo Alto since Hackborn set it up thirty years ago. This spans five CEO's: Young, Platt, Carly, Hurd, and now Leo. Nothing has changed, except that they are no longer growing, and their spot in the sun is about over.
The Enterprise game -- which ALL BY ITSELF just surpassed IBM HW and SW for the first time (this is IBM HARDWARE AND SOFTWARE, which is all that IBM used to be) -- is beyond thrilled. This is the group that bought Autonomy (which I think was a stupid purchase because they bought the wrong company, not the wrong segment. Attensity's technology works; Autonomy's has been 'sold' to big corporate clients, but is really second-rate stuff by comparison. All the local 'smart companies' use Attensity now).
IBM is befuddled, despite the glowing East Coast press, the ads, and the stock price. You don't see this in the Wall St Journal, they still cannot believe that IBM is as weak as it is -- a problem they've had for thirty years. Ditto the Harvard Biz Review, the New York Times, and that asinine analyst reprinted in the San Jose Merc today, Toni Sacconaghi at Sanford Bernstein. The idiocy of these 'presumed analysts' escapes me how they get printed
This dumb bastard Sacconaghi issued an UNDERPERFORM, and then defends it, saying at the end the following: "I expect the stock to be at $37 within a year, so therefore it is a stock to avoid -- it takes a lot of patience". Is this guy for real? 61% gain in one year -- that's a LOT OF PATIENCE? These idiots are essentially day traders masquerading as investment advisors.
So, my friend, I'd say HOLD or even BUY. If they successfully spin out PC's (which they should, and will), that $40 Billion business alone will likely support a $10/15 per share price. If they do that, I would modify my longtime position to think that HP should also do the same with Printing. That would be another $12/18 per share -- how many $25 billion companies besides Intel, Microsoft and Google have greater than 50% market share and greater than 10% net profit? Those two pieces alone are worth more than the whole company is valued at today, mostly by panicked uninformed stockholders who've been pissed that the Board sacked wundurkind Hurd (the guy who systematically took R / D apart and virtually single-handedly killed HP morale and ethics) and now that Leo is having to rebuild the place, they're blaming HIM. Get real!
The company that would be left would be bigger than PCs and Printing. It'd be a $60 billion juggernaut, growing twice as fast as IBM, aimed squarely at the "new cloud world" with more relevant underlying technology than IBM or Oracle or Cisco have today, and the only other contender is SAP, which they'll perhaps buy with the proceeds from the two sales. The new company would be worth $50 / 80 per share if given equivalent valuation to IBM's exalted price.
No one recalls that John Wooden had seventeen losing seasons at UCLA before his first team went to the quarterfinals. The next fourteen years built the legend.
No one recalls that Steve Jobs managed to cut Apple revenues in half in his first seven years back after they sacked Amelio and the other "suits". Nor that when he finally got growth back into Apple, it took three more years to get profitability turned around. It took four years to get the i-Pod "successful". And it wasn't until the i-Phone II that the sales were sustainable, let alone exciting. No question that Jobs deserves the accolades he gets. No question that it took him longer than John Wooden to 'get it right'
The clown in NY, self-reputed hedge fund genius David Einhorn, who in a May speech wanted to bag Steve Ballmer for 'bad management' at Microsoft since the shareprice hasn't risen in a decade, shows similar lack of understanding even though he can put dates on a stock price chart. He must have bought at the peak, and he clearly hasn't read the same equivalent numbers for Intel or Cisco or he'd be after all CEOs of high-tech companies that had bubble-priced stocks in 2000. Ballmer's run has been extraordinary, re-profiling the company so that it is NOT Windows-dependent, growing twice as fast as Intel, Dell, HP PCs, Cisco, and five times as fast as IBM, while merely tripling profits. Not a bad ten years for what is now a $75 billion dollar company at 20% net profits. Einhorn is a total idiot. But sadly, it is folk like him that shareholders have to listen to.
Most investors, I am convinced, don't have much if any sense of history. So, my friend, this can work to your advantage. HP is way stronger than the market is saying today. Enjoy...