HP: Is it a broken company?

HP: Is it a broken company?

Summary: There's no middle ground on HP. The company is either a screaming bargain or broken. Figuring out whether HP is a bargain or broken is complicated.


HP is either the greatest value in the technology industry or a company on the wane. Turns out there's not a lot of middle ground when it comes to HP.

The company's future---now in the hands of new CEO Meg Whitman---was a key topic in multiple places. On ZDNet's Great Debate series, the question was simple: Can Whitman turn around HP?

Whitman: The great HP fixer?

I took the side that Whitman wasn't going to bring HP back to its past glory. The primary reason is I see Whitman as an interim figure. She's the fixer, the communicator and the one who will hopefully create a structure that will enable an internal candidate to take the reins.

In other words, Whitman can stabilize HP and execute a short-term vision, which appears to be a spin-off of the PC business and a software strategy that revolves around Autonomy. However, is Whitman the CEO for the next decade?

More: Great Debate: Can Whitman turn around HP? | HP's biggest challenge vs. IBM, Oracle: ContinuityHP's CEO carousel continues: Whitman officially in, Apotheker out

Add it up and I argued that HP's problems will outlast Whitman's tenure:

Whatever HP decides it wants to be when it grows up it needs to focus on research and development and carve its own path. The current model revolves around being someone else---IBM, Cisco, Apple, whoever's next. The problem is that HP has starved R&D at 3 percent of revenue all through the Mark Hurd years. Now HP doesn't have the financial heft to suddenly jump to 6 percent (IBM levels) or even higher. That's why I'm arguing that Whitman can't turn around HP. HP's R&D problems will last longer than Whitman's tenure if history is any guide.

Given my points about Whitman, it's a natural leap to assume I think HP is broken. I don't necessarily see HP as broken because frankly I don't see it as one company. It's a series of companies that are stitched together in a way that doesn't quite make sense.

Among the moving parts:

  • The enterprise server, storage and networking division could stand alone. That unit is the core of HP's system and data center beachhead.
  • The PC business is profitable and No. 1 in market share. But is there a future for a consumer focused low-margin business?
  • The printer unit is a cash cow, but in many respects it faces the same threats as the PC division. Another wild-card: What if society really goes paperless?
  • The services unit is solid, but doesn't have the high-end strategic feel of an Accenture or IBM. Getting there takes work.

While you can debate whether HP is a broken company, there's also a good argument that the company needs to be broken up. HP is about to enter a multi-decade period of transformation. You can't create a long-term vision, boost R&D and improve continuity overnight.

On the flip side, HP has a strong brand and market standing. As Whitman said "HP matters," but it's an open question of how much relevance the company will have going forward.

The HP-as-broken theme was analyzed by Sanford Bernstein's Toni Sacconaghi earlier this week. Sacconaghi noted that HP is cheap at 4.9 times projected earnings. He wrote:

Prior to this month, not one tech stock with a market cap of >$5B has traded at less than 5.5x earnings in the last 20+ years. In fact, ex financials, only 19 stocks with market cap above $5B have traded below 5.5x since 1990 (of which nearly half were in the cyclical energy sector), and only 5 stocks with a market cap over $20B have traded that low.

Sacconaghi argued that HP isn't broken, but Wall Street is treating it like a dead company. That take led to an interesting discussion on the Enterprise Irregular email list. Among the notable comments:

  • HP's valuation is based on historical metrics, but there are no guarantees that the company will have the same earnings and revenue profile going forward.
  • Others argued that HP's demise really started with the acquisition of Compaq. The acquisition of EDS muddled the strategy even more. Now HP may need to merge with a major services firm and hand over management to the partner. Without a transformational merger, HP is going to ultimately have to sell off divisions.
  • HP doesn't have a purpose and has lost it soul.
  • Private equity has to salivating over HP and the prospects for a leveraged buyout. Also note that HP retained Goldman Sachs to fend off any hostile takeovers.

Has the HP hate gone too far? It's too early for definitive answers, but rest assured the polarized debate will continue.

Topics: Banking, Emerging Tech, Enterprise Software, Hewlett-Packard

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  • RE: HP: Is it a broken company?

    one word. NO ! It is facing a crisis time of finding a good leader. And it is also true that "when mind is malfunctioning, the whole body suffers". But I am hoping that this is just temporary and HP will be back to those wonderful old days of innovation.
    • RE: HP: Is it a broken company?


      If anyone has worked for HP as a contractor for the Navy, you know for a fact that the Navy would be way better off on their own.

      When I worked there for short contracts, all I did was browse the web and watch Netflix all day. All though I was happy to get paid, It was also sickening to see tax dollars wasted left and right (much more than just staff wages). HP hired managers who are good at playing the government politics game to ensure they keep raking in the contract money rather than actualy providing good service.
    • RE: HP: Is it a broken company?


      The culture which drove the old days of innovation has been deliberately buried by Hurd and Carly. With a company as large as HP it will be virtually impossible to bring it back too, short of pulling a Bell labs style operation where they fund a semi-autonomous group. I don't see them doing that.

      They have services.... except that Hurd ran out a lot of their best talent with jaw-dropping pay cuts and layoffs.

      Their PC side is big, but HP's brand is hardly considered premium and the uncertainty has been rocking their perception further.

      Printers? In my experience tablets are, finally, rendering print media obsolete. The paperless world that was talked about loudly years ago is now arriving without a fuss.

      Software? I've used some of their products which were purchases from other companies. As soon as they purchase a software company the quality goes to the toilet.

      I guess servers is still going well....
  • RE: HP: Is it a broken company?

    Not yet, bring back the "Build Your Own" models for personal and laptop computers. Don't use subpar boards with defective caps (See Acer), and keep the Compaq line, most people favor it over HP.
  • RE: HP: Is it a broken company?

    Yes, they have made a series of bad choices going back years. The whole effort with bringing in more arrogance and less talent is the key. This goes across divisions. Look at the huge fiasco with Palm OS. Now there is a history of errors alone.
  • RE: HP: Is it a broken company?

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  • RE: HP: Is it a broken company?

    Absolutely - Now that they are without a Visionary or Leader, their BOD will spiral the company down into oblivion. It is sad, because they had an excellent opportunity to become a Prime player in the Global Enterprise Systems HW/SW market. However, now they do not even have anyone that understands that market.
  • RE: HP: Is it a broken company?

    Did anyone else click the 'Maybe RIM should kill the PlayBook' link and end up here?
    Graham Ellison
    • This is supposed to be the "RIM...PlayBook" link...

      @Graham Ellison Yes, Graham, I did as well...guess we're the only ones who noticed...
      • RE: HP: Is it a broken company?

        @rmazzeo - not really was going to read this blog next, now will have to search for the RIM article. This is happening more frequently on ZDnet, links are either dead or take you elsewhere.
  • RE: HP: Is it a broken company?

    Clearly they are broken - the issue is can they be fixed. With no vision, no execution strategy and awful leadership there is noone to harness the incredibly strong BU's - all of which are pretty self-reliant - and forge an integrated value offering. Sure the cloud is coming - but the HP execution is a mess. As a consultant I advise clients to examine any alternative but HP - as they are in such flux that nobody can count on a clear architecture emerging with the needed long-term support.

    Meg's legacy - if positive - will be she came in as a trauma nurse, staunched the bleeding and stabilized the patient while the board found its Gerstner equivalent to turn align HP's powerful assets into a cohernet services delivery vehicle.
  • RE: HP: Is it a broken company?

    'It's the economy stupid"...remember these words? HP dealt with the masses and the masses have spent all they could afford. The winners are the innovators for those that can afford to purchase the newest things. HP concentrated on volume and not innovation and thus is following others.

    It can get to the front with effort and more so with innovation. They have the people, I believe the resources, now do they have the vision and the will?
  • RE: HP: Is it a broken company?

    As I have said earlier, HP managed to seriously offend a number of major customers, so the first part of any valid recovery would seem to be working to win back the broken trust (and do that by ACTIONS, not words). Then HP should have the luxury of working on what they want to be at a more casual pace. I believe they can do it, but the question I ask: "Do they have the resolve to do it?". Leadership can not structure repair & recovery unless they know what damage has already been done.
  • RE: HP: Is it a broken company?

    What needs doing is following through on the earlier model. Everything that HP has under one roof just happens to be Michael Dell's vision. PC's, Datacenters [servers, network plumbing, storage], networking, and services. The problem here is that it seems like no one is bringing the cross-division deliverables (in marketing-speak). If you want to be All things to All people, you gotta be able to serve it to the customer. I don't buy the software/services argument as it is all about quarterly returns rather than grabbing ever more market-share from Dell, Cisco, and all the rest.
    Brian J. Bartlett
  • RE: HP: Is it a broken company?

    No HP is not broken it is just the victim of some very stupid press releases and management that doesn't know what to focus on, they believe that everything should fit under one company when in reality there are at least four distinct groupings within HP. These four groups should be run as distinct companies or areas of expertise. The software group should operate independently selling its services, but promoting the other services where appropriate. The second group would be the big iron and networking group selling solutions to companies, the third group should be the PC business which would include both consumer and business computers as well as the printer business and the fourth group should be the phone and tablet group which HP gave up on too fast. if HP wanted to make a big splash with their phones and tablets they should of stayed with their original announcements and went with WP7 and Windows 7 initially and then Windows 8. Working with Microsoft they could have developed a Mango powered tablet and probably had an instant hit instead of trying to introduce a new OS, I know as a user I would have instantly picked up their tablet running Windows, especially if that tablet contained an SSD and was capable of running apps that run on my desktop, I manage my life through databases and if I can carry that info with me, my life becomes easier to manage.

    HP has to realize that it has all the parts for a great company but those parts should run independently but still able to compliment the other elements within the Corporation, a good president will encourage each division to play on its strengths but encourage other divisions to work on complimentary products for the other divisions. So HP is not broken at this time, it is just misguided in that it doesn't understand the pieces it does have. If it continues to focus on just one area in the misguided belief that this is where its future lies, then yes it will be a broken company before Whitman fulfills her mandate, then who will buy the worthless remainder.
  • Meg kills everything she touches...

    Meg Whitman, the lady that ruined eBay, lost $200 million in an attempt to ruin California, now she has her sights set on destroying HP.

    Great work HP! Did anyone think to look at her past disasters before hiring her? It seems not...
  • RE: HP: Is it a broken company?

    Just go to their website and check out their Board of Directors. Most are new this year. They did not hire Apotheker. They are all smart, and successful business leaders. I would not underestimate what they can do, nor what Meg Whitman can do, given the succesful business units within HP.
  • RE: HP: Is it a broken company?

    Of course it's a broken company. It needs a Carl Icahn-type to pressure the company to split up for value to the shareholders, and sell off the pieces.
  • RE: HP: Is it a broken company?

    HP was broken the minute they tried to get into the PC market...

    They screwed Colorado Memory Sytems. ( CMS tape drives ) I was also there and couldn't stand the arrogance of the " HP_TITES " to the former CMS workers...so when I finished my CMS contract, I said NO to HP....And NO to the Test Group when they found out I had worked for TEST at AMD...

    Honestly, HP treated many of the people in Colorado like second class citizens that didn't deserve HP in the first place...

    They did the same to COMPAQ and killed off a good support site when they took over...

    I could see this because I was from BOTH CA and CO cultures!

    My only observation:

    HP's HUBRIS has finally met with it's NEMESIS...

    My Recommendation:

    Get back to building just GOOD TEST EQUIPMENT...

    Oh, YOU gave that market to some overseas companies...
    too bad....
    Old Timer 8080
  • RE: HP: Is it a broken company?

    Yep! HP - like quite a few corporations - confuse management ability with leadership, the two are not the same. A leader must be a good manager but very few managers are good leaders. Managers are effective at lower levels but leaders are mandatory at the upper levels. Unfortunately all too often managers are promoted into leadership positions where they are incapable of providing the needed leadership.

    Another mistake is that Board of Directors are providing exit packages and other exorbitant bonuses that need not be earned but are paid simply for being there. A leader must improve the profitability. If they fail to do so they should not receive bonuses, nor severance packages when they leave. Leaders should be required to perform or be removed without further compensation. A test of a true leader is their willingness to take on a position with the only guarantees are those based upon their successes. If a prospective leader demands a golden contract they are not a leader and they know it, thus the golden contract demand.