Can acquisitions speed up Hewlett-Packard’s slow-motion turnaround plan?
I can’t believe I’m even asking that question. Scrolling back to HP’s earnings call Wednesday night. Just minutes after announcing a management shakeup and dismal third quarter results, including revenue falling 8 percent to $ 27.23 billion compared to $ 29.67 billion last year, HP CEO Meg Whitman admitted that the company is looking at acquisitions again. The Financial Times characterized her statement “the scariest words in English when spoken by the boss of Hewlett-Packard.”
She phrased her statement — made in answer to a question — carefully. Whitman’s full quote from the call (transcript here) was:
”So we now have an opportunity to say where can we use strategic acquisitions to further our overall objectives as a company and we will be back in the market as we think about acquisitions that can further our objectives. Again we will be incredibly measured and disciplined. We are very mindful of the event that we just came off with Autonomy.”
Ah yes, Autonomy. That was the $ 7+ billion acquisition in 2011 that resulted in gargantuan write-downs and a fraud investigation. Hard to forget.
More acquisitions? I don’t get it
The idea that HP’s salvation lies in buying yet more technologies and products for its already huge and confusing portfolio defies logic. Outside of Autonomy, acquisitions have been a mixed bag for HP. Palm (bought in 2010 for $ 1.6 billion) hasn’t — to put it charitably — done much. But the company always touts 3Par storage, for which it paid $ 1.6 billion, as a success story.
HP’s problem stems not from lack of products but from a confusing array of too many products that people don’t want. And from an outdated enterprise sales model that is foundering in the age of cloud computing. The lack of compelling new products coming out of HP R&D is testament to the fact that R&D was gutted under the previous Mark Hurd regime.
HP, other legacy players, is hamstrung in brave new world
One CIO in the hospitality industry exemplifies what’s happening out in IT land. This exec, who requested anonymity, barely buys any server-room hardware at all anymore. And what software he buys is via a SaaS model so he doesn’t care what it’s running on or where it runs, as long as it runs:
“Enterprise IT buyers are not going to be as interested with infrastructure. Who cares what the applications run on? In my four years I was approached all the time by the HP Blade rep. We talked about baseball and that’s it. Our infrastructure is hosted or consumed by a packaged application.”
Those outsourced HP apps might run on HP blades, but somehow I doubt it. And in any case, he clearly doesn’t care.
If you think I’m being too hard on the HP, Wall Street was similarly unimpressed with HP’s progress. There are even hints that Dell-like shareholder activism could loom.
As Sanford Bernstein analyst Toni Sacconaghi put it in his post-call report:
“With Whitman’s turnaround now “officially” behind plan, we wonder if we might see increased clamoring for more radical action by either the Board or outsiders. Our thesis on the stock has been that either Meg Whitman improves company performance or the Board (or activists) will break up the company; our sum-of-the-parts analysis suggests a value of ~$ 34, and we note that as of HP’s aftermarket price, the stock was comfortably the least expensive stock in the entire S&P.”
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