The market had quite an ugly day Thursday. But for a brief moment, Hewlett-Packard (NYSE:HPQ) swam upstream the down-current on news it is considering a massive $10 billion buyout of software firm Autonomy, among a host of other reports swirling around the stock that day. HPQ stock gapped up about 6% at lunch time yesterday even as the Dow Jones bounced along about 400 points below the index’s reading at the opening bell.
Of course, the gains were fleeting and Hewlett-Packard stock finished the day down, along with nearly every other stock on Wall Street. Some investors were fooled for about an hour — and then the profits evaporated. In trading Friday, HPQ stock slumped to a new six-year low.
Yesterday’s news is a fitting example of how is trying to manage its business these days. The 10-figure buyouts. The claims that it is rethinking its role in the tech sector. The blatant flaunting of its massive cash stockpile at a time when companies claim to be suffering from the economic downturn.
Hewlett-Packard is everything that’s wrong with corporate America right now — stupidity, a lack of innovation, bloated operations and no leadership.
Lots of people thought Hewlett-Packard was delusional when it bought Palm in 2010. At the time, the company didn’t have a hint of self-awareness but instead engaged in the typical hyperbole of a big-name buyout. Check out this gem from the an official press release on HP.com:
“Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices,” said Todd Bradley, executive vice president, Personal Systems Group, HP.
Oh yeah? Well what about the news yesterday that Hewlett-Packard will be abandoning any effort to capitalize on the mobile market by killing its tablet computer and mobile phone business based on WebOS — the very gadgets Palm was supposed to inspire?
Only a wasteful, boneheaded corporation like HP can make a $1.2 billion purchase during a recession then give up on that buy a mere 16 months later. (That sounds almost like something Congress would do, doesn’t it?)
The icing on the cake: Just this past February after the Palm deal closed, HP made a big to-do about its plan to duke it out with the iPad — and just months after smack-talking, it had to eat its words.
Lack of Innovation
Unfortunately, the $1.2 billion for Palm is just part of a spending spree fueled by HP executives with too much money and a desire to spend it without thinking.
In November 2009, the tech giant paid $2.7 billion for routing and digital security stock 3com. Then in September 2010, Hewlett-Packard engaged in a spitting match with Dell (NASDAQ:DELL) to buy out data storage and cloud computing stock 3Par — with HP paying $2.35 billion for its “winning” bid of $33 per share, more than 83% higher than Dell’s opening bid of $18 a share.
Now we have news that the company could be buying British software stock Autonomy for $10 billion, according to reports confirmed by major news sources Thursday.
We’ve already had HP essentially admit the Palm move was a disaster. But even if we take a huge leap of faith and assume those other moves pay off, HP is building its future profits on the work of other companies and the efficiencies it can gain from streamlining operations to maximize margins and profits.
That’s fine if you’re a CEO or executive at the top of the food chain. Not so good if you’re part of the 25,000 workers trimmed in the wake of the 2008 acquisition of Electronic Data Systems for $13.6 billion. Or the 9,000 HP employees let go in 2010, or the thousands of folks who undoubtedly will be terminated as this tech giant “consolidates” operations in the years ahead thanks to these bloated buyout deals.
Far be it from Hewlett-Packard to grow through innovation and critical thinking — or at the very least, adapt to the changing landscape and find a way to connect with more consumers and businesses with current offerings. That would require some leadership and some true entrepreneurial spirit.
True, growing via acquisitions isn’t necessarily a bad thing. Lots of stocks do it, and do it well. But Hewlett-Packard clearly is trying to compensate for an utter lack of organic growth prospects and management’s inability to grow HP on the merit of their ideas. It’s hard to argue that some $30 billion spent on acquisitions since 2008 is anything other than change as the illusion of progress.
Bloated … And Getting Fatter
So in less than two years, the company likely will burn $16 billion on four multibillion-dollar buyouts that cover consumer tech, data storage, networking and enterprise/search software.
Undoubtedly, board members will argue that Hewlett-Packard is trying to diversify its operations to achieve economies of scale and expand their service offering.
Of course, those folks should probably stop justifying their behavior and listen to companies like Cisco (NASDAQ:CSCO). I’ll let CEO John Chambers do the talking (taken from this report on CNBC):
“When you’re growing, let’s just say for purposes of discussion, in the high teens, you can afford to bet in many areas. When you’re growing in a lower number — just for purposes of discussion, let’s cut that number in half — you can’t afford many of the areas. So we’re going to cut back on the number of priorities, get very focused on our top five (and) grow it through.”
There’s nothing new about good corporations getting a little too fat and unfocused. Heck, even Wall Street darling Apple (NASDAQ:AAPL) had its moment of corporate disarray. The iconic tech company was on the verge of irrelevancy in 1997 before it called Steve Jobs back to the corner office. But as you can watch Steve Jobs say in his own words in this YouTube video (the speech starts around the 7:00 mark), “Apple’s not as relevant as it used to be everywhere, but in some incredibly important market segments, it’s extraordinarily relevant.”
In short, Steve Jobs didn’t save Apple by rethinking the company but returning to its roots and focusing on what it did best. Neither did Howard Schultz overthink things when he came back to streamline Starbucks (NASDAQ:SBUX). And if John Chambers keeps his job, it will be because of what he cuts — not what he creates — in the months and years ahead.
These CEOs didn’t have to catch lightning in a bottle. They simplified things and returned the companies to growth by using addition by subtraction. Innovations like the iPhone or Via instant coffee came later, as a result of a renewed corporate mission and less “noise” in the boardroom.
Unfortunately, HP hasn’t gotten that memo. Instead, it continues to spend increasing amounts of money for the next big thing — not realizing that too many big things actually will cave the roof in.
Perhaps most damning is that HP is an asylum run by the inmates, with varying degrees of delusion and plain craziness across some of its biggest moves lately year.
The company announced a $10 billion buyback in 2010 and executed over $4 billion of that plan. Just weeks ago it announced plans to buy back another $10 billion in shares. Yes, HPQ had a $12 billion in cash as of this spring. But where is that money coming from in light of this $10 billion buyout deal unveiled this week? Was the buyback plan just a PR move to cheer up investors?
In earnings yesterday, Hewlett-Packard lowered its revenue forecast for the year, which hurt the stock. But more disturbing was the sideshow that surrounded these announcements. After rumors surfaced that HP was considering spinning off its PC business, the company confirmed talks with a surprise press release — that just so happened to drop the bomb about killing its its WebOS mobile business on top of disclosing earnings about a half-hour before its scheduled time to report numbers.
Who the heck is running this operation?
That question has been asked many times in the last several years. Carly Fiorina was forced to resign as chief executive officer and chairwoman in 2005 following “differences (with the board of directors) over how to execute HP’s strategy,” according to a corporate press release. Funny to think they had one given the way things have shaken out.
Then in 2010, CEO Mark Hurd resigned amid controversy over sexual harassment claims and shenanigans over expenses — which managed to overshadow his silly buyout of Palm, among other interesting moments in his tenure.
It’s one failure in leadership after another. And this leadership vacuum is perhaps the most disturbing thing for shareholders. Because until HP gets some adult supervision, it will continue to make stupid and lazy business moves — and share prices will continue to suffer.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.