Why Hewlett-Packard Will Never Be Great Again

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Hewlett Packard
It was two years ago this week that Hewlett-Packard's (HPQ) world was turned upside-down.

Then-CEO Mark Hurd -- who had excelled at improving margins at the PC maker through shrewd cost-cutting and focusing on higher-margin businesses -- was unceremoniously dismissed after filing bogus expense reports.

Things got ugly quickly after Hurd was gone. An inept CEO took his place, and investors paid the price for HP's costly acquisitions and blowing more than $1 billion on its doomed webOS platform.

The once-proud tech giant has shed 58% of its value over the past two years, surrendering more than $50 billion in market value. This would normally be an opportune time for value investors to jump into the printing, computer, and software bellwether, but that's not the smart move at this time.

As bad as things may appear to be now, they can always get worse.

Downgrades When You're Down

UBS analyst Steve Milunovich initiated coverage of HP with a sell rating this week. The bleak rating and $16 price target were birthed by concerns that HP has become a jack-of-all-trades. In gunning for both the consumer and enterprise markets, HP is not gaining traction in either camp.

Just as we've seen router rooter Cisco (CSCO) falter by trying too hard to matter in the consumer market, HP finds itself battling two losing battles.

It also doesn't help that PC sales have been stagnant for two years and that even the company's flagship printing business seems out of date in these dot-com times where even event ticketing and coupons have gone digital to save on paper and printing costs.

The Numbers Aren't Smiling

Analysts see revenue slipping 3% to $122.9 billion, and that's the good news. Those same pros see profitability sliding 17% to $4.07 a share. Wall Street sees marginal improvement next fiscal year, but even those marks are well off what HP cranked out a year ago.

This should be a great time for HP. Microsoft's (MSFT) about to roll out Windows 8 in a handful of weeks, and logic would dictate that it's the ideal time for PC and laptop owners to upgrade their computers.

You also have new CEO Meg Whitman at the helm. She watched over eBay's (EBAY) heady growth for years. She should be able to work the same magic at HP, and even the skeptical Milunovich is a fan of Whitman's centralizing strategy, sales, and marketing. He just fears that it will take years for Whitman to work her magic -- and we don't know if HP has that kind of time.

The 'Good Enough' Revolution Is for Real

HP is still the world's largest PC company. Industry tracker Gartner claims that HP shipped roughly 13 million PCs during this calendar year's second quarter, but that's a 12% decline from the 14.8 million units that it moved a year earlier.

HP's global market share is down to 14.9%.

Shrinking market share in a growing pie is reasonably acceptable, but this pie is outright endangered. Smartphones and tablets are the way that many people are choosing to perform rudimentary computing tasks these days, and that's bad news for HP. It has flopped badly in recent attempts to matter on those fronts.

Acquiring Palm to nab the once-revolutionary webOS operating system was supposed to make HP relevant, but it was the wrong deal at the wrong time. HP's revival of Palm devices and its proprietary webOS tablet was short-lived.

It's too late now. Android and iOS devices have run away with the market.

Even its own partners are turning on HP. Microsoft's decision to put out its own Windows-fueled Surface tablets will make it harder for traditional box makers HP and Dell (DELL) to stand out.

HP can lament that folks sharing snapshots on social-networking websites don't need to print out photographs anymore or that an iPad does the basic surfing, gaming, and streaming that consumers used to rely on PCs for in the past.

It doesn't matter. HP's glory days are in the past.


Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Cisco Systems, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of eBay, Apple, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread positions in Apple and Microsoft.


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53 Comments

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Nightryder

You all realizing that what YOU THOUGHT was top in business, really isn't. We have all been conned by America's CEOs. Now you find out they weren't worth all that money in the first place but you stand idly by with your fingers up your asses

August 12 2012 at 8:25 AM Report abuse rate up rate down Reply
marisat96

Lenovo Computers have taken up the old IBM personal computer business. Lenovos are good computers and customer service is satisfactory. On the other hand, when I recently had a problem with an HP fax / printer I was mistreated. I was ignored and little effort was made to rectify THEIR mistake.
I personally, will NEVER purchase anything from HP again.

August 10 2012 at 8:47 AM Report abuse rate up rate down Reply
marisat96

Lenovo Computers have taken up the old IBM personal computer business. Lenovos are good computers and customer service is satisfactory. On the other hand, when I recently had a problem with an HP fax / printer I was mistreated. I was ignored and little effort was made to rectify THEIR mistake.
I personally, will NEVER purchase anything from HP again.

August 10 2012 at 8:46 AM Report abuse rate up rate down Reply
jackie

can you buy a IBM computer ?i never see them advertized

August 10 2012 at 8:35 AM Report abuse rate up rate down Reply
Ed

The economy has affected everybody including the tech world. HP will come around, especially when tech wonder and 2nd in HP command Tom Bradley gets his chance. Meg is OK while the tech world stutters, but Tom will take HP to new hieghts.

August 10 2012 at 8:30 AM Report abuse rate up rate down Reply
troofdetector13

This story probably tickles Arianna Huffington to death. I bet shes anti business like her god Barack Obama.

August 10 2012 at 4:39 AM Report abuse rate up rate down Reply
accsport

I liked there meters and test instruments. I wish they would not have stopped that line. I've had numerous problems with their printers to the point of refusing to buy their brand anymore. They are the engineer of their own demise and I don't feel bad for them.

August 10 2012 at 2:58 AM Report abuse rate up rate down Reply
robtmwall

HP shot themselves in the foot years ago when they shifted from a high tech instrument company to just another PC manufacturer. The dumbest mistake they made was selling the test instrument division, which was their core business, and focused on consumer products. I knew they had gone to hell in a hand basket when I inquired about the longevity of prints from their high end printers. The marketing weenie I talked to had no clue and didn't realize it was a significant issue. Epson by comparison has a 75 to 200 year longevity on the prints from their high end printers, and the fool in HP marketing had no clue how important that was.

August 10 2012 at 12:18 AM Report abuse rate up rate down Reply
Patrick

Why I NEVER believe everything that I read, either in the newspapers or on the internet, nor everything that
I get on the radio or television: Because they are reporting only some of the facts and giving us their
opinion as the facts. Because news readers don't get out to do the actual footwork required of a detective
working through an issue. Because fewer and fewer news providers are independant and marketing and
propaganda seem to be the tools of state that manipulate these outlets. My Grandfather, GOD rest his soul,
was a Managing Editor for a, at the time, well respected newspaper. He taught me about these things.
Now I pass that on to you!

August 09 2012 at 9:22 PM Report abuse rate up rate down Reply
1 reply to Patrick's comment
Nightryder

Patrick, there is no such thing as journalism today. Use this site as an example. Reuters, the AP and ALL the networks "news reporting" is nil. They do such a terrible job reporting you got to wonder after reading and article, what was that article all about?
Everyday we get mis-reporting of events.

August 12 2012 at 8:30 AM Report abuse rate up rate down Reply
Rod

Nor Xerox.

August 09 2012 at 8:46 PM Report abuse rate up rate down Reply