Carly Fiorina and Her Record at HP

Presidential candidate Carly Fiorina has been taking a lot of heat and defending her record while at Hewlett-Packard ten years ago. Below are a couple of charts summarizing HP’s stock performance during those years. You can draw your own conclusions. Suffice it to say that many employees were glad that Carly Fiorina  was removed from Hewlett-Packard. Unfortunately, by the time she was gone, the “HP Way” had all but disappeared.

And in another chart:

 The sources and crisper images are below. You can also click on the images to expand them.  The analyses point out that the economy was not great during those years. Neither article gives Fiorina  an "A" for her performance, though. 

http://www.marketwatch.com/story/carly-fiorina-failed-at-h-p-but-so-has-everyone-else-2015-09-18?siteid=yhoof2

http://www.bloombergview.com/articles/2015-09-18/carly-fiorina-s-hewlett-packard-record-in-one-chart?cmpid=yhoo

Hewlett Packard - The Adventure Continues for HP and CEO Meg Whitman

For Hewlett Packard and CEO Meg Whitman, there is never a dull moment.    Board Chairman Ray Lane was essentially given a vote of no confidence by shareholders and has relinquished his chair position.  . John Hammergren, who has been on the board since 2005, and former Wachovia CEO G. Kennedy Thompson, a director since 2006, will resign, as well.  The three could perhaps offer themselves as a package deal for Dancing with the Stars.

All three have   been on the board for much of Hewlett Packard’s precipitous decline in stock price.  There for Autonomy.  There for the  tablet debacle.  You really can’t  really  blame the board for these, in some respects.  External smartest guys in the room and others in the Hewlett Packard organization did make the recommendations. 

After hitting a 52-week low of $11.25, that stock has gone up to $20.66.  This is still substantially below the just under $45 they were trading at a couple of years ago.  On a percentage basis, the Dow has increased about 20% and Dell has decreased about 10% over the same period.

So, what is HP going to do?  Meg Whitman is still saying recovery will be a four-year process.  Hewlett Packard has been investing in security as part of their strategy.  Tablets were revived from coaster status to being part of the strategic mix. Smart phones may be part of the mix in 2014.   Last week, as part of project Moonshot, Hewlett Packard introduced a line-up of super servers.  These are designed to appeal to the biggest social-media, cloud-computing, and e-commerce sites.

Autonomy is going to continue to be part of HP.  Even after the massive writedown.  "We remain committed to Autonomy; we remain committed to the brand, to Cambridge, to the U.K.," she said at a  recent news conference.   "It is an almost magical technology. ... It plays into a big shift in the market, the area of Big Data, which HP should be in."  Bets are being taken as to who will ultimately be thrown under the bus for the analysis of this deal and from which side of the pond.   http://www.denverpost.com/business/ci_22999671/hewlett-packard-ceo-meg-whitman-remains-committed-autonomy

 

The laptop/PC business won’t drive a recovery.  Printer sales and ink revenue won’t increase if laptop/PC sales tank.  According to IDC, laptop/PC sales dropped over 11% in Q1 versus the same period in 2012. For HP, the drop was 24%.  Windows 8 sales have not been astronomical, as well. 

The takeoff in tablets has sucked the growth out of PC and laptop sales.  Tablets will   out-ship desktop PCs this year, according to IDC.  They are also forecasting that by the end of 2013, desktop PC shipments will dip 4.3 percent.  Tablet shipments will rise to 190 million units, an annual growth rate of 48.7 percent, according to the firm.

Whitman was named CEO in September 2011, replacing Leo Apotheker.  “The pressure is on Meg,” stated Toni Sacconaghi, an analyst with Bernstein Research.  A housecleaning of the board “bought her a year.” according to an April article in the New York Times.  More bold moves are needed by Hewlett Packard and Whitman.  Going private (unlike what Dell is trying to do) isn’t an option.

Whitman and Hewlett Packard need to make even more aggressive  moves.   

http://www.datamation.com/mobile-wireless/tablets-to-surpass-desktop-pcs-this-year-idc.html

 

http://www.forbes.com/sites/connieguglielmo/2013/04/04/hewlett-packards-board-continues-to-deliver-drama-as-chairman-lane-steps-down/

“Hewlett Packard and Meg Whitman – The First Year.  Turbulence and Turmoil in the Valley” at

http://kensek.blogspot.com/2012/09/hewlett-packard-and-meg-whitman-first.html

HP-Autonomy acquisition under US Government Investigation - the Adventure Continues

The investigation over the $11.1 billion 2011 Autonomy (founded by Mike Lynch)  acquisition by Hewlett Packard   is growing into an even  larger  legal soap opera. The  US Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), and the Serious Fraud Office are  all now involved.  Accounting firm  Deloitte, one of the advisors in the deal, is going to be quite busy responding to inquiries. KPMG may have to get involved, as well. Meg Whitman and the rest of the Hewlett Packard board will be having chats, as well. 

There are a number of ways to value an acquisition.  One of the most rigorous methods is using discounted cash flow analysis. Doing revenue multiple based on similar companies is another way.  However, revenues are fuzzy.  You can sign a 10-year contract, and depending on the deal, recognize the revenue at one time, or spread the revenue over a 10-year period.  Ditto with the costs associated with the sale.  There are hard dollars associated with determining profitability, as well as soft dollars.   

Much  of the value of an acquisition rests on the discounted cash flows from future revenues based on projections.  If the projection drops, the value of the acquisition drops. And if the drop is material, it has to be reflected on the acquiring company’s (HP’s) books. Hence, the $8.8 billion write-down.

In a December 28 article ZD Net article,    “HP-Autonomy acquisition under US govt investigation”, ZD quoted from a blog posted by founder and former Autonomy CEO Mike Lynch. 

Lynch said HP had failed again to provide detailed calculation on its US$5 billion write-down of Autonomy or publish an explanation of the allegations it made against his former management team. 

"Furthermore, it is now less clear how much of the $5 billion write-down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections.  This appears to be a material change in HP's allegations," he said. 

Lynch again dismissed any claims of impropriety and pledged to cooperate with the DOJ investigation.  "We continue to reject these allegations in the strongest possible terms.  Autonomy's financial accounts were properly maintained id in accordance with applicable regulations, fully audited by Deloitte, and available to HP during the due diligence process."

It has already been written how Autonomy was sloppy in where they assigned revenues and costs between the hardware and software in some of their deals.  This is going to cost them  if it is determined in the investigation  that they ignored US generally accepted accounting principles  (GAAP).  The IRS does not like to be shortchanged. 

However,   Hewlett Packard (CEO Meg Whitman and the HP Board) would have to approve of  this adjusted valuation.  If it was largely based on  adjusting the  forecast  of future revenues downward, and this was then used this in calculating the $8.8 billion  write-down of the deal, HP should be willing to share this information.

The firm, Robbins Geller Rudman & Dowd LLP filed a class action suit against Hewlett-Packard last week in November. They’re probably enjoying this.

http://kensek.blogspot.com/2012/12/another-look-at-hewlett-packard.html

 

Hewlett Packard and Meg Whitman – The First Year. Turbulence and Turmoil in the Valley

The first year of Meg Whitman’s tenure at Hewlett Packard has not been fun.  Challenging?  Yes.  The company hit a 52-week low of $16.23,   in late September.  Its 52-week high of $30 was in mid February.  When Whitman took the reins of the company in September of last year, the stock was trading at just under $23.  So investors have seen the value of the stock decline of about 30% during year one.

Whitman gets a C- for year one.  Revenue, earnings, stock price, market share are all down.  Many proper decisions to turn the company around are taking place.  The numbers are not there yet.  Whitman stated when she took over the reins that this would be a multi-year project.

According to SF Gate,  Whitman is betting that refining the company's existing strategy, rather than making radical shifts, will help reverse the company’s troubles. 

Dell has been suffering over the same timeframe.  From September 22 to September 28:

• Nasdaq – up about 28%
• Dow Jones – up about 26%.
• Hewlett Packard - down about 25%
• Dell – down about 29%

With the exception of March and April, Hewlett Packard and Dell have been trending downward at about the same rate. Click on the graphic to enlarge it.

The big day will be October 3, when Whitman discusses her strategy for HP at an analyst conference.

Some Brief Observations

Autonomy - Autonomy has been a disaster for Hewlett Packard over the last year.  Jefferies analyst Peter Misek is advising investors to sell HP's stock, but is warning that HP could be heading for another huge write-off, of around $3 billion.  http://www.businessinsider.com/analyst-says-hp-may-write-off-3-billion-2012-9

The 27k layoffs –   Layoffs, retirement, attrition.  This is good for the company, ultimately. 

Continuing to lose laptop market share to Dell and Lenovo – bad.  Its share of PCs dropped to 14.9 percent in the second quarter, while Lenovo's share has increased to 14.7 percent, according to Gartner.

September introduction of “Stylish and Affordable Consumer and Business PCs”   and hoping to “Help Businesses Maximize Productivity with Powerful New AMD-based PCs” – HP is trying their hardest to reverse the loss of market share.  

Introduction of new entry-level, web-connected Designjet ePrinters - They are betting that some people will always need to be printing.  Betting on the razor blade strategy here. 

HP also had a September introduction of what they are calling the industry’s first web-connected, entry-level printing solutions for architecture, engineering and construction (AEC) students and professionals.  This strategy is to make   in-house, large-format printing accessible to more users.

The trend towards people printing less from their laptops/desktops – bad.  Cartridges are one of Hewlett Packard’s razor blades.

Announced intention to offer a mobile phone – bad.  This is a crowded market.  Hewlett Packard will be a late entrant.  "We have to ultimately offer a smartphone because in many countries of the world that is your first computing device.  You know, there will be countries around the world where people may never own a tablet, or a PC, or a desktop.  They will do everything on the smartphone.  We're a computing company; we have to take advantage of that form factor," Whitman said, according to a transcript. 

http://www.mercurynews.com/business/ci_21543699/hewlett-packard-developing-smartphone-ceo-meg-whitman-says

 

The on again, off again tablet -   Mixed thoughts on this.  An HP tablet may be successful only as a niche product.  They are late.  The market is crowded.  This means downward pressure on prices and margins unless HP comes up with something unique. 

Spinning off Web OS into Gram - If it is going to be successful, this was probably the only way to do it.

Additional security solutions announced in September – Excellent.  HP is betting heavily on security.  In a down market, companies slow their investment in security, they do not slash it. This included new features to HP Assured Identity, Security Operations Consulting services, a new release of ArcSight Enterprise Security Manager.  They also announced   the introduction of the HP TippingPoint NX Platform Next Generation Intrusion Prevention Systems (NGIPS).  I don’t know about that last acronym! Back to the conference room for the naming committee.

New virtualization solutions announced in August at VMWorld – Very good.  They announced that they were expanding their HP Converged Cloud portfolio with new solutions for VMware vCloud® Suite 5.1.  This is a growth sector, regardless of the different definitions people are using for "cloud".

Revenue/earnings - Bad.  Four consecutive bad quarters. Enough press.  Enough said. 

Look for major articles on Hewlett Packard, October 4.  This is the day after the analyst meeting.

http://www.sfgate.com/technology/article/Meg-Whitman-to-sharpen-HP-business-focus-3887883.php

Major Moves by Hewlett Packard and CEO Meg Whitman

The sleeping giant is making some moves.  Last Wednesday,    ewHewlett Packard wrote down its investment in its enterprise services division by $8 billion.  To put this in perspective, Electronic Data Systems(EDS), which is part of this group, was purchased four years ago for $13 billion.  

 
The write-down is one of those accounting “things”.  Its recognition that the investment in EDS  was not as great an investment as HP originally thought it would be.  Some would say, “Oh, a major mistake.”  Others would say “market conditions.”  Regardless, it’s a hit to goodwill and an expense to the income statement.  It's  a non-cash adjustment to the balance sheet.  As a result of the charges, Hewlett-Packard said it would report a loss of $4.31 to $4.49 a share when it announces its third-quarter results on Aug. 22.

This week, an  interesting move by by HP CEO Meg Whitman.   The WebOS group is being spun off  as an independent but wholly owned subsidiary.  Its name, Gram.  The tagline - “Potent.  Light.  Nimble.  At the core of all things big and small.”  Gram will be in stealth mode for the next few months.  An open source version of WebOS will still take place in September.

   

My humble opinion is that the market will like the Gram news on Thursday.  It’s not a light move, name notwithstanding! This gives Gram the opportunity to innovate  more quickly than it would if were still in the HP corporate  framework. Not quite a skunk works.   Going against Gram is the fact they’ve lost brainpower over the last several months. Reactions by tablet makers?  They probably won’t make any grand statements.   

August 15 marked day 328 of Meg Whitman’s tenure as CEO.  The stock has dropped   15% since she took over as CEO, hitting a one-year low of $17.41 in early August.  Both the Dow and NASDAQ are up a little over 20% during that time.  Dell has dropped by about 12% over this period.

Whitman  has stated since the beginning of her tenure as CEO September 22  that the turnaround will take time.  These and the layoffs announced   in May are major moves.  She and HP are  not standing still. 

http://www.crn.com/news/mobility/240005635/hp-spins-off-webos-business-as-gram.htm?cid=nl_alert

 

http://www.nytimes.com/2012/08/09/technology/hp-takes-8-billion-charge-on-eds-acquisition.html

Seminal Moment for Hewlett Packard and Meg Whitman – 27,000 Layoffs Announced

Let the restructuring begin.  ­ For the fiscal second quarter, ending  in April, Hewlett Packard’s profit before some costs fell to 98 cents a share, below  analysts’ 91-cent average estimate.  However, the sales decline of three percent to $30.7 billion topped   the average projection of $29.9 billion.

As part of the earnings announcement on Wednesday, HP stated that it plans a   27,000 workforce reduction (an 8% reduction) between now and October 2014.  This is the largest payroll purge in its 73-year history.  Annual savings from layoffs, retirements, and other measures, will be about $3.5 billion annually.  The job cuts and retirements will pare Hewlett-Packard’s workforce to  349,600.  Among Whitman’s foci for the coming turnaround, delivering the “right products, at the right price, at the right time.”

Many of the cuts will come from the   enterprise services group, which manages data centers and provides technology consulting. This group expanded when Hewlett Packard acquired Electronic Data Systems for $13.2 billion in 2008.  Services demand has slowed, and the division’s profitability has declined amid competition from companies such as International Business Machines Corp.

  "These are never fun but given where H-P is, these are necessarily to get the company back on track," Sterne Agee analyst Shaw Wu said.  During the reign of Bill Hewlett and Dave Packard, during one economic lull,   employees worked a 4-day workweek with a reduction in pay to maintain staff.  In today’s environment, even they may have had to go for layoffs. 

 “This is quite different from the cost-cutting that Mark Hurd undertook,” Whitman said in an interview.  “This is about fundamental business-process re-engineering.”

Meg Whitman   has said the company needs to make its products and services more competitive and spend more on research and product development.  Under some of her predecessors, Hurd, for example, R&D   suffered as cost cutting was the primary focus.  Brian Marshall, an analyst at ISI Group, said in a research note last month the company ought to spend $4 billion to $5 billion on R&D to compete with IBM and Cisco Systems Inc. in developing new products.  Hewlett Packard had been spending about $3.2 billion annually. 

When Whitman was named CEO in September, HP’s stock was at about $22.80.  It closed on Wednesday at $23.03 and had reached a peak of $29.89 on February 16.  During Whitman’s tenure, NASDAQ has gone up by about 15%.  Not a lot can be read into this, however.

A Brief Timeline of Whitman’s Tenure to Date

• Aug. 18: HP announces it will discontinue its tablet computer and smartphone products and may sell or spin off its PC division.
• Sept. 23: HP fires Apotheker after just 11 months and replaces him with Meg Whitman
• Oct. 27: HP says it will keep the PC division after all. 
• Dec. 9: HP says that instead of selling its WebOS mobile system or killing it off, it will make it available as open-source software that anyone can use and modify freely.  HP says it still plans to develop and support WebOS
• Feb. 22, 2012: Whitman urges investors to be patient and talks of a "multiyear journey" for a turnaround. 
• March 21: HP says it will combine its PC and printers businesses.  The move will save an unspecified amount of money.   
• April 11: Estimates from research groups Gartner and IDC suggest that HP has regained much of the PC business it had lost during the period of indecision.  Now about those tablets they sold for $99 when they said that they were thinking of discontinuing that business….

There will be uncertainty over the next few months as Whitman and had team decide in more detail where the cuts will be during this restructuring.  About a third of them will be in the United States.  The analysts will probably in general  be positive with the move.  Layoffs and reinvesting in R&D is nothing new.  These are typical turnaround Bain type activities, where both Whitman (and Romney), spent part of their careers.   

Nothing   has been said how acquisitions may play a role in the turnaround. While R&D will increase, growth via acquisition can make sense for certain deals to get into a business or plug a gap in a product line quickly. Part of Apotheker’s demise was his decision to (way) overpay for the Autonomy acquisition.  Hewlett Packard had been investing more heavily in security and making security acquisitions.  This will continue.

When Whitman accepted the CEO position,   she moved out of the “executive offices” and into a cubicle on the floor with other employees.  This is more in keeping with the culture that Bill Hewlett and Dave Packard had for the company. You didn’t see this during the Carly Fiorina era.

Meg Whitman isn’t getting a huge salary for her efforts.    In a recent filing with the Securities and Exchange Commission HP wrote that  Whitman received a salary of $1, about $16.1 million in stock options, and $372,598 in "other compensation," including use of the company aircraft.

 

http://www.bloomberg.com/news/2012-05-23/hp-third-quarter-forecast-misses-estimate-27-000-jobs-to-be-cut.html

 

http://kensek.blogspot.com/2012/03/meg-whitman-era-at-hewlett-packard-six.html

 

HP Ships Virus-Infected Flash Card with ProCurve Switch - PC Market Share Data

Hewlett Packard shipped ProCurve switches with a virus-infected compact flash card that could compromise a personal computer, according to articles published last week. Hewlett-Packard released a statement that said it had "corrected potential security vulnerability."

This is kind of a “whoops” for a company the size of Hewlett-Packard that has a major investment in security. Among their products are network security appliances (the TippingPoint acquisition falls under this group), and firewalls (in the Niche portion of Gartner Magic Quadrant for Enterprise Network Firewalls)> they also offer Intrusion Prevention Systems (IPS) and Threat Management Systems (TMS) (Tipping Point solutions, as well). This isn’t a Meg Whitman problem. It probably provided a Maalox moment for a few more senior people in the security division.

http://www.crn.com/news/security/232900249/hp-ships-virus-infected-flash-card-with-procurve-switch.htm?cid=nl_crnup

On a more positive note, Gartner has reported that Hewlett Packard was the top PC vendor, with 15.31 million units shipped during Q1 2012. Shipments improved 3.5% year over year to 17.2%. Lenovo was second with a 13.1% market share, up 28.0% year over year. This could be a sign that HP has made the right decision by choosing not to shed the personal computer division.