Don't be fooled by Hewlett-Packard's (NYSE:HPQ) news that Q3 EPS will come in above estimates. Be wary of what lies ahead. If you're holding, don't buy more until we see an actual strategy.
Notice that HP did not provide any guidance as to Q3 revenue. The shakeup in its services business suggests trouble there, which - combined with the disastrous Autonomy acquisition and the printer and PC issues - spells more trouble ahead. It really may take Meg Whitman five years to turn this around, but investors cannot afford to wait five years.
Some analysts think HP is a value; others say it's a value trap. The facts are: HP still has tremendous assets and a tarnished, but still respected brand.
But it needs new leadership. Ray Lane hasn't and won't cut it; neither will Meg Whitman. Until there's a change, investors should stay away.
So what happened at HP? How could such a large, respected company fall so far, so fast?
Here are five deadly mistakes by Hewlett Packard and its board of directors, in chronological order:
- Pushing out Mark Hurd. Good CEOs are a rare commodity. Hurd had done a successful job at righting the HP ship and gaining the confidence of investors. HP is a huge, diverse company and Hurd had it operating smoothly. The acquisition of 3Com and EDS diversified HP away from its reliance on printers and helped HP in the enterprise space. You'd think the board would bend over backward to keep a CEO like Hurd. Yet, the board and Hurd came to loggerheads over a sexual harassment claim that seemed, on its face, rather childish. Hurd moved on to Oracle (NYSE:ORCL).
- And HP moved on to Leo Apotheker. Mistake No. 2. Apotheker's hiring raised eyebrows everywhere. He'd was not a known commodity; he'd resigned in disgrace from SAP (NYSE:SAP). And while he did know software - where HP needed more bandwidth - he had no experience running an organization as diverse as HP. Worse, as James Stewart of The New York Times noted, only four of HP's entire board, actually met Apotheker before he was hired. Shameful. HP Chairman Ray Lane, who lauded Apotheker's hiring, ate crow a year later when he had to announce that Leo wasn't the lion he thought he was.
- Don't make stupid disclosures like "We're thinking about exiting one of our core businesses but aren't really sure.'' During Apotheker's tenure, HP's board disclosed that it might spin off, sell or keep its PC division. Imagine the confusion in the marketplace when a supplier says they're not sure if they'll remain in the business you've come to rely on and they may not support the products they've just sold you. The PC spinoff may have been a good idea, but the execution of the discussion was a textbook example of how not to do it.
- Don't anger a partner who is a lot stronger than you. Suing Oracle (ORCL) over its decision not to port its software to HP's Itanium line was a disaster, even though HP won the first round in court. It's clear that HP should have met with Oracle's Larry Ellison and found a way to convince him to continue supporting Itanium, which provides some of HP's highest margins. Instead, HP's customer base very quickly lost faith in Itanium and HP.
- Double and triple-check your instincts on acquisitions. To many experts, HP's decision to acquire Autonomy for some $12 billion was an impulsive and ill-valued move. They've been proven correct, in spades. Autonomy has not melded into HP; its executives have bailed and HP is stuck with a mediocre investment and a huge pile of festering debt.
What unites all of these decisions? They all seemed overly reactive, ill-timed and poorly reasoned. Running a major corporation is not like running a corner deli. It should not be hectic. There should be a strategy, execution of that strategy and continued long-term planning.
In just two years, HP has failed on many different levels. The market has lost confidence in the company, and it's no wonder. Stay away until we see stronger leadership and direction.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.