So much for that short-lived rally in Hewlett-Packard (NYSE:HPQ), eh?
The tech giant sold off sharply Wednesday in anticipation of yet another ugly earnings report. Investors got what they expected, as HP reported a 31% drop in fiscal Q2 profits and reduced guidance for the year.
But it seemed that some were cheery about restructuring plans — HP announced it will cut 27,000 jobs — and investors drove shares up in after-hours trading.
That optimism quickly fizzled. The after-hours gains of about 8% resulted in HPQ gapping up at the open, but it steadily lost ground across the trading day to close at $21.77 — one penny lower than Tuesday’s close of $21.78.
Like I said, so much for the rally in HP.
Investors have good reason to be pessimistic. I’m not just talking about poor earnings and outlook either. As I wrote a day ago, Hewlett-Packard’s latest turnaround is just as doomed as its past efforts.
This is a company that has been struggling to find its way since 2005, after all. And what a coincidence! The current pricing of HPQ stock is the lowest since May 2005.
Here are the ugly facts about Hewlett-Packard stock performance:
- Down 15% year-to-date vs. 2% gains for the Dow and 8% profits for the tech-heavy Nasdaq in the same period.
- Down 48% since Jan. 1, 2011, vs. 9% gains for the Dow and 7% gains for the Nasdaq.
- Down 57% since Jan. 1, 2010, vs. 21% gains for the Dow and 28% gains for the Nasdaq.
- Flat since May 2005 vs. 22% gains for the Dow and 48% gains for the Nasdaq.
Between this week’s post about why HP’s turnaround is doomed and my rant last year about why HP embodies the worst of corporate America, I’ve offered up plenty of reasons for why this underperformance. This time, I’ve decided instead to put some of the curiosities of HPQ stock in graphic form for easy browsing … check it out above.
But looking forward, here are some more reasons to doubt HP:
Some say the former eBay (NASDAQ:EBAY) chief is the best thing HP has going for it. I disagree. Hewlett-Packard is trying to position itself as a corporate IT and cloud specialist, but Whitman’s experience is with consumers. She is distracted, serving on the boards of Zipcar (NASDAQ:ZIP), Procter and Gamble (NYSE:PG) and the nonprofit Teach for America, even as she leads HP.
She’s also 55, worth more than $1 billion and well-respected because of her eBay successes — so it’s only natural to wonder how motivated she is this late in a very successful career.
Whitman was a flashy hire for a board looking to save face after butting heads with Carly Fiorina, suffering scandal with Mark Hurd and giving up on Leo Apotheker after less than a year — but like a free-spending sports team looking to appease fans with a big-time free-agent signing, there is a big difference between creating buzz and creating positive change.
I’ve said plenty about HP’s serial acquisitions in the past, but Alphaville did a great job parsing numbers for the latest big-time move: Autonomy. You’d think the $11 billion buyout would pack some punch, but here’s what Alphaville has to say about the numbers:
“If we assume core revenue at HP’s software business has been flat since Q3 (which is a charitable assumption), Autonomy has provided an extra $134m dollars to the division in the first quarter of 2012. Year on year, that would suggest its sales were down 40 per cent.
Spin forward to the latest quarter, repeat the process and Autonomy appears to have flat-lined from Q1 with sales down 45 per cent from last year. That’s not good. At the current run rate, HP’s acquisition price was around 20 times annual revenues.
So what happened? HP puts the blame on Autonomy’s small-time execution. The Autonomites blame a clash against HP’s culture, which one particularly excitable code monkey compared to “being water-boarded.”
Not a good sign, but not really a surprise considering the previous disastrous acquisitions at HP. For more, check out the whole Alphaville article, “Autonomy: a postscript.”
Enterprise? Not Mobile?
I got a great email from a reader yesterday contrasting HP with Lenovo (PINK:LNVGY), a $9 billion tech company based in Hong Kong. It traditionally had been a PC maker, but thanks to a focus on tablets/mobile and red-hot sales in China, profit jumped 59% in this week’s earnings report and outpaced growth trends industry-wide.
To be clear, PCs still are crucial to Lenovo, and there are serious concerns about whether it can diversify into the fast-growing tablet and smartphone markets fast enough … but at least the company is trying. Investors are liking what they see so far, too, as shares of Lenovo are up 29% so far this year and 80% in the past five years.
But rather than follow this model and the industry-wide forecast that mobile is the way of the future, HP is trying to emulate the moves of IBM (NYSE:IBM) 10 years ago when it recast itself into an enterprise and corporate IT business.
I suppose that could work if it worked for IBM … but come on, enterprise tech is mighty crowded right now, and businesses aren’t exactly spending like gangbusters. It’s a big leap to assume that HP will be a leader in cloud technology, squeeze out entrenched rivals and be there in time for a rebound in corporate spending.
But I suppose any bullish call on HP is a big leap, so why not?
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.