SAN FRANCISCO — Hewlett-Packard stock fell more than 20 percent Friday after the company announced a massive restructuring that will see it virtual abandon its consumer-facing businesses including smartphones, tablet computers and personal computers.
HP stock was off more than $7 to about $23 in early trading — a level unseen since 2005 — as investors gave a thumbs-down to prospects for the iconic Silicon Valley company, which also announced quarterly earnings and a major acquisition late Thursday.
Brian White, an analyst with Ticonderoga Securities, said earnings were in line with expectations but said the company's projections for the current fiscal fourth quarter were below Wall Street's expectations.
"Despite weakness in the stock on this announcement, we still advise investors to stay on the sidelines as we believe more bad things could be lurking around the corner," he told Reuters Thursday.
HP's restructuring contains an unmistakable message: HP has failed to cater to both consumers and corporations. As a result, it needs to exit most of its consumer businesses, just as IBM did six years ago.
The overhaul will have three parts:
HP will stop making tablet computers and smartphones by October.
It will try to spin off or sell its PC business, the world's largest. By the end of next year, HP computers could be sold under another company's name.
The company plans to buy business software maker Autonomy Corp. for about $10 billion in one of the biggest takeovers in HP's 72-year history.
HP, the largest technology company in the world by revenue, will continue to sell servers and other equipment to business customers, just as IBM now does. Those businesses currently don't generate as much revenue for HP as PCs, but they have higher profit margins.
HP CEO Leo Apotheker would not say whether any jobs will be cut. HP plans to take a charge of about $1 billion for restructuring and related costs, some of which could go for severance payments. HP employs more than 300,000 people worldwide.
The changes announced Thursday are motivated by a shift toward an IBM-style business model, which is focused on selling to corporations and governments.
But the influence of Steve Jobs and Apple Inc. shouldn't be underestimated. Apple is the hottest consumer electronics company on the planet with its highly popular iPhones and iPads.
"Apple singlehandedly knocked HP out of the PC, smartphone and tablet business," Gleacher & Co. analyst Brian Marshall said in an interview.
HP’s valuation has not changed that much – the PC business only represents about 16% of operating profit, so even if HP gives it away, earnings power will not decline greatly. HP should still be able to get a decent price for it, as there has got to be a Chinese company out there swimming in US dollars that wants to put them to work before they become worthless. HP’s core businesses, will be slightly impacted by the global economic weakness, but the company should maintain its earnings power largely intact. Autonomy reduced HP’s value by about $3; but with my lack of confidence in management, I’d not buy HP at a P/E higher than 10, which would bring the stock to the mid to high 40s.
HP’s stock sold off not because the company disappointed Wall Street but because Wall Street grew tired of the overpriced “must-have” acquisitions. Wall Street has smartened up and assumed that this acquisition, as with many other “transformative” acquisitions, will do nothing of the sort. And so, today we are faced with a decision: buy, hold, or sell. At 4.6 times earnings HP is not a sell; but considering that the company is still trying to figure out what it wants to be when it grows up, it is hard to add to our holdings of the stock; so unfortunately this company has turned into a hold
Leo Apotheker has watched Hewlett-Packard's stock price drop nearly 44% since he took on the CEO position in November. While watching the technological empire crumble around him he may have though a big move was in order.
Alas, he struck out once again.
On August 18th’s HP’s press release announced his $11.7 billion (overpriced) purchase of British software company Autonomy, its failed webOS and touchpad endeavor, lower full year FY11 revenues, not to mention his visionary sell-off/spin-off of HP's PC division. Shareholders were not pleased, as represented by the 22%, or $16 Billion, drop in value on Friday, and rebounded a mere 3% on Monday.
It seems Apotheker's made a few bad calls. Time will tell if his vision was worth the hit in the long term. Short term, investors are angry and the talk of activist investors has entered the mix
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