Consider that since 2005, Hewlett-Packard has acquired 42 companies. The price tag is difficult to calculate because of all the small companies and private businesses HP gobbled up, but consider this: The 10 largest of that group — including the 2008 deal to buy Electronic Data Systems for $13.9 billion and the 2011 deal to purchase Autonomy for $11 billion — totals roughly $40 billion.
HPQ’s expected market cap for Thursday morning: About $46 billion. Gotta wonder where the “value” from all those deals has come from.
And here’s where I come full circle back to that $54.7 billion in “goodwill.” Goodwill frequently is inflated when one company buys another for a premium over book value. Consider the ill-advised Palm acquisition for $1.2 billion. Total assets at the time were around $1 billion, so HP paid $200 million more. And when you take into account some $1 billion in liabilities at the time of the buyout, including $390 million in debt, you can understand why someone in accounting wanted to play up the intangible benefits of Palm so much.
In short, because the tangible benefits left much to be desired.
The problem is that, eventually, intangibles must become tangible or investors are going to get cranky. And if they don’t, the company needs to ‘fess up and quit deluding itself into all the “valuable” products it has gathering dust on the shelves.
That’s why in the fourth quarter, HP was forced to write off a record $3.3 billion — because its big-time acquisition of Palm was a big-time failure.
How in the hell will HP ever unwind those serial acquisitions? Simple: It can deny and deny, but eventually it will have to write off the “value” of those moves.
I wonder if, when HPQ files its Form 10-Q in the next few weeks, there will be another write-off of substantial size, too.
The bottom line is that perpetual restructurings and cumbersome acquisitions have been the order of the day at HP for ages, and there is little hope of that narrative changing anytime soon. Any investor buying after this earnings “beat” needs to sober up.
I mean, come on: What in the world does HPQ stock offer you? If you want consumer tech, HP has killed its mobile line — so pick the tablet leader in Apple (NASDAQ:AAPL). If you want enterprise, pick red-hot IBM (NYSE:IBM), which has stable leadership and is up 80% in the past five years and up 17% in the past 12 months. If you just want to dabble in the tech sector, pick a broad-based ETF like the iShares Dow Jones US Technology ETF (NYSE:IYW).
Hewlett-Packard simply has nothing to offer beyond the hollow hopes of a turnaround. After all, this company has been turning around for years — why make progress now?
Seriously, drop me a line and explain to me why anyone would want to own this stock. Comment in the section below this article or send me an e-mail at firstname.lastname@example.org.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.