Thursday, February 23, 2012

Hot Air From HP

I  read the press on HP's quarter, and a quick six month comparison on Yahoo, using Cisco and Dell as peers, shows Cisco up about 30% and Dell and HP about dead even at some 17%.  HP was indeed a good trade at $25, where it showed strong support and an accumulation pattern.  The jury is still out on value creation.

From prior pronouncements, it seemed obvious that CEO Whitman was being counseled to tamp down expectations as low as possible; her characterization of HP as a GDP driven growth company may have been in that vein.  On the face of it, the current quarter is disappointing even against the dismal guidance.

The Wall Street Journal reported these comments from CEO Whitman:

"Ms. Whitman was named CEO in September after the board fired Leo Apotheker, in part because of his decision to pursue a spin out of H-P’s PC business. Ms. Whitman, who was already on H-P’s board at the time, approved Mr. Apotheker’s decision, but on Thursday sought to distance herself from it. The job of a board member, she said, is to decide “do you want to back the CEO or get a new CEO.”

The last sentence is really muddled thinking.  She is distancing herself from her own decision as a former board member, to go along with a proposed spin out of the PC business.  But, in revealing her rationale, she should make a shareholder reach for the Rolaids. 

The decision on whether or not to spin off the PC business should NEVER have been a referendum on the popularity of the CEO.  It should have been a strategic business decision, weighted on the best financial analysis available, tempered by the board's own broader business judgment.  Even going against a CEO recommendation says nothing about that executive's value.  Management proposes, but the board disposes. 

Let's say during the five year turnaround that has now been suggested by CEO Whitman, she were to decide to bite off another monster acquisition.  According to the logic of her statement, that decision would be an up or down vote on her staying on as CEO.  For a company with a history of CEO mis-steps, this comment makes me wonder how this board looks at things.  Would they agree with CEO Whitman's comments? 

Some bullish analysts talk about the company's ability to deliver end-to-end solutions for IT customers from PCs to servers, software, analytics and consulting.  So what?  IT purchasers want best in class performance at every system node and interoperability so that they don't have to go with a one vendor solution throughout.  IBM doesn't make PCs anymore, yet they have many of the same pieces.  They focus on what they do at a world class level. 

HPQ has lots of great assets and financial strength, but so did Digital Equipment Corporation, much beloved by analysts and academics; it of course lost its way and sunk into oblivion.  The board's job is not keep a CEO happy but to make sure that every major decision is made with the best interests of the company in mind and to make sure that it stays in business.

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