Monday, June 25, 2012

HP Breaks Support

We recently wrote about HP and about how the smart value investors at FPA got whipsawed. We noted the awful stock chart, and today the price broke $20 intra-day, a level which seemed to have decent support.  John Dvorak in his widely read market column calls for HP to hire a "visionary leader."  He describes current CEO Meg Whitman as being "a functionary."   I understand where's coming from, but I think his characterization is a bit hard.  I also disagree with his statement about vision.  The company has had visionaries from Carly Fiorina on through today: hardware visionaries to software visionaries to the present CEO.  Enough is enough about visions.

The world of HP external stakeholders definitely need much better communication about where the business is going, why and how fast.  All of the non-GAAP to GAAP reconciliations are nice, but they leave all the fundamental questions unanswered and allow no real forward valuation of the company prospects.  The limited sample of institutional research I see tells me the analysts don't know where the company is going in terms of cash flows and returns.  Autonomy would be the logical place to start.  Keeping mum yields no benefits, and any meaningful clarity would go a long way. 

They also need focus on improving the portfolio as it is. Commit to standing shoulder to shoulder with their customers. assuring them HP will do whatever it takes to earn their trust, keep their business, and help them to grow their profits with HP technology and services.  More vision will yield only more nightmares.

I do agree with John on a substantive point which he clothes in humor.  He writes, "The last dumb move was the company’s purchase of Autonomy, a odd U.K. software company that seems to specialize in the creation of screwball corporate cliches using the word “meaning” as the cornerstone.  For example, they engage in “meaning-based computing” and “meaning-based governance” and “meaning-based marketing.” I hear H-P is looking for someone to run the operation. How about Werner Erhard or Deepak Chopra?"

They do need to get rid of all this gobbledy-gook and write plain English in their disclosures.  There is no need to impress customers or tech analysts with how smart the company is.  Both Deepak and Werner would certainly bring vision....and a lower share price.

No comments: