HP Hires Goldman: The Best Defense Is a Good Offense

HP's embattled board hired Goldman Sachs to assist it with anti-takeover defenses in wake of its unparalleled streak of value destroying activities. In a very limited sense, the board does have a duty to be prepared for the appearance of an activist investor, and so the move could be regarded as a good defense.  They have certainly hired the best to help them, but that's as far as it goes.

We wrote in our last post, "Without some fresh air in the board room, it's hard to see how HP becomes anything other than a value trap."  I really believe that the company won't be able to move forward and realize its potential without changing the way it does business both in the market and in the board room.  Putting a poison pill into place, for example, is a knee jerk, mindless alternative usually associated with companies whose fundamental options for creating value are limited.  A pill would also deter some high quality, traditional institutional investors, which are just the sort of investors the company needs now. 

The best defense can be a good offense.  In this case, the good offense would focus on fundamentals, such as definitively changing the company culture, changing the way an alternatively meddling and disengaged board works, rationalizing the company's strategy and portfolio, resetting the business model to focus on customers, raising the hurdles for returns and use of assets, and communicating in an entirely different way with stakeholders.  This is the only place where the company board and management should be focused, and not on trying to head off an activist investor.  HP is big enough that there are few activist investors who would be able to acquire a big enough stake and risk dead money while a turnaround takes place; it could happen, but it will take time, and in that time, the board and management should roll up their sleeves and focus on fixing the culture and the business model.

Hearkening back to my analyst days and thinking about Fluor's decision to put off buying HP computers for its global organization, I decided to talk to some tech repair people about what they thought of HP computers.  Several years ago, I noticed that a lot of tech savvy users carried HP laptops, in preference to Dell and IBM/Lenovo.  The latter manufacturers were classified as "junk," referring to everything from design, to component quality, to assembly and finishing.

Today, the situation seems to have reversed itself in my survey.  HP laptops and desktops were the ones marked "avoid," or "junk."  Meanwhile, Dell and Lenovo have become highly regarded for volume purchasers.  One repair tech was kind enough to take me on a tour of a desktop's guts that he had repaired.  It was a gaggle of cables, some of which were harnessed and some not.  He tried to harness a big clump of cables in the interest of allowing better air flow and accessibility for service.  Slots were poorly designed for boards and cards, which then resulted in poor fit and more heat.  The HP units look like someone built them in their garage.  Talk about fundamentals! 

If this business is to stay within the corporate portfolio, then it needs to be an industry leader, and not an object of ridicule.  This kind of turnaround requires hard work, as opposed to a press release about hiring Goldman Sachs.  Let's hope that HP gets down to business soon.