Will HP Ever Get Back on Track?
12/04/2012 11:45 am EST
In the latest blow to its stock, HP announced another multibillion-dollar writeoff. MoneyShow's Jim Jubak discusses why this may be a symptom of a larger problem for the whole market.
You’ve got to say this for Hewlett Packard (HPQ): they’re getting this big, multibillion-dollar writeoff thing down pat.
It took them a while to write off the EDS services division. They took an $11 billion writeoff...but this is an acquisition that goes back a long way, to when this was Electronic Data Systems. Now we’re getting a $5 billion writeoff announced on November 20 for a deal that’s only a year old. This is the Autonomy software company that Hewlett Packard bought.
So we’re getting a $5 billion write off, and what turns out—at least what the current CEO, Meg Whitman, is saying—is that this deal was done under the last CEO, she wants that to be very, very clear. Due diligence didn’t uncover all the stuff. There was stuff they claim, business that Autonomy claimed to have written that really hadn’t generated any revenue. Ledgers were incomplete.
So basically, what they’re saying now is that not only are they going to write off this stuff because it’s a bad deal, but they think there’s actually fraud involved, and they might actually be able to recover some of it.
Lost in all of this—this is the spectacular headline number—lost in all of this is a huge swing from profit to loss. Not that HP made a lot of money in the last quarter; in the fiscal fourth quarter of 2011, they made about 12 cents. But now we’re looking at about a loss of about $3.50 a share in this quarter.
I think one of the things you’re looking at is problems across the entire PC sector, whether it’s HP or Dell (DELL) or Intel (INTC) or Microsoft (MSFT), because people’s use of devices is shifting away from desktop computers toward handheld devices of one sort or another, whether it’s a tablet or a phone. That’s really causing a tremendous crunch in the old-line PC companies that haven’t made the transition yet.
Software deals like the Autonomy deal were supposed to make that transition easier or make it possible for HP to transition to this new world. But it hasn’t yet, and we’re seeing all these struggles going on at all these big, old tech companies.
One of the reasons, I think, that you can talk about the stock market struggling is that you’re not getting a whole lot of leadership from that old technology sector. Maybe you get leadership from Apple (AAPL), maybe you get leadership from Google (GOOG), maybe EMC (EMC) or VMware (VMW), but you’re not getting it from these big guys.
And there’s still a tremendous amount of money locked up in these. These companies are still a big part of a lot of investors' portfolios. So trouble there is trouble for the Nasdaq is trouble for the S&P is trouble really for the whole stock market. And that’s one of the drags that’s pulling on the market.
Normally in a rally, technology is one of the sectors that leads the rally along with financials, and you can see problems in both these sectors. It’s one of the reasons why it’s been so hard to get a rally going again after it moved up, say from June to September, not a long rally built on fundamentals, because these two key sectors are really not participating very well in their normal leadership role.