Is 'activestor' Icahn circling sickly HP? Active investor Carl Icahn – who has done more than his fair share of shaking up companies that he believes are not run properly – is rumored to be mulling a stake in HP. Hopefully not through its heart. Icahn may or may not be interested in grabbing a big piece of the venerable IT gear maker, and if he were, he certainly …
A perceptive article! HP, and Microsoft and Dell are all suffering from executive and organizational bloat, and are demonstrating that well known industry truism that more is often less. Companies have a lifecycle, where they go from lean, motivated start-ups to whale-sized dinosaurs who can't achieve much, including profit growth.
The problem usually occurs when the ''Senior VP" layer is added. This is when a large bureaucracy is needed to support the new chiefs. These fiefdoms then spend most of their time fighting each other for turf, losing all sight of what made them interesting. The result is a stifling "Excellence by Process" attitude that achieves by grinding everything for a long time and then needing 30 executive signatures to accept the color of the 'Start" button.
Decentralization and removal of upper-layer bloat is the only real hope HP has. Maybe an asset-stripper is just what they need, though delicate surgery rather than blunt knives might be more appropriate.
@Jim:
I agree with the majority of your comment, though I do think that a substantial part of the problem that large companies have in capitalist economic models is the idea that profit growth is perpetually possible. Growth is only one of several factors that should be used to evaluate a company's performance, and beyond a certain size/turnover/profit expecting consistent growth as a % of last year's profit becomes silly.
I think Captain's comment is dead on. There is this ridiculous notion that companies can, and should, grow profitably forever, increasing EPS, profits, revenue by around 10% every year in perpetuity to be successful. If you can do some simple compounding math, you will find that a company of HP's size that met those financial goals would have to take over the industry within a decade and sell more products than customers have spend. At some point, companies saturate their markets and hit a ceiling of the revenue and profit their business model can provide. When this happens, as happened to HP, companies, or executives more specifically, start taking desperate gambles (Autonomy, EDS, Palm, cutting everything in sight, etc) in order to achieve the growth and profits that analysts tell them to provide. There are some companies who can thread that needle, but no company can just grow endlessly year after year after year. Eventually companies are going to understand that making $100 billion and $7 billion in profits, as HP did prior to all of these debacles, with growth at about the rate of inflation isn't the worst thing in the world. A more sustainable approach would have better long run results.
The art, as ever, is the ability to note change and be willing to adapt, do things differently and even move into areas previously alien to you. Your ultimate goal is to progress but through delivering value to your clients, employees and shareholders irrespective of fluctuations in revenue/profitability goals. Alas, as a publicly listed giant or behemoth such rational movements are anathema and this is where the crux of the matter lies. HP should be either be broken up, taken private or be run by people with an eye on what's coming and not what has been. It's fate, otherwise, is uncertain.
I agree with both of you. Our economies and our corporations are wedded to the concept of perpetual 3% or greater growth, on a finite planet. The perpetual 3% growth is based on a perpetual population growth, again on a finite planet. It's madness.
Won't anyone think of the (too many) children!
"A 51 per cent stake would run just under $14bn"
A shamefully stupid bit of analysis, that. Market cap is predicated on the current market conditions, but the article hypothesizes a radically changed market by imagining a take-over. Do you think you could, say, buy half of the gasoline in the US at the currently price? In other words, if we cut the supply by half, the price would be unchanged?
I guess what would happen is that someone takes out an addy saying "I will buy your shares for current market value + 1 USD and the deal goes through if I can collect x% in total. Phone number is yadda yadda.". He wouldn't phone his broker to attempt to hoover up shares openly.
True in theory, but if Icahn is buying a stake in the company, he is not going to announce it (probably really upset that this leaked if it is true) and buy $14 billion in one order on one day. He would buy a block of shares every day for months and months at undetectable levels through many intermediaries.
HP's current plight reminds me of my 1980 years in IBM,,, Big Iron,, 3270 Displays all hooked to the MainFrame. HP never ending flow of Inkjet Printers, all sucking up all the ink they could produce. Ahh the wonderful life of the 'Cash Cow' nirvana.
IBM was lucky enough to have a great Board at that time, and they canned the CEO and brought in Atilla the Hun.
Ruthlessly he cut and cut and divided and reoriented and went back and cut and cut and reoriented again,,,, finally out of the ashes,,,,, came the new true spirit and essence of the new company. It's an ongoing story,,, Gerstner did his job and Palmisano has done his and Ginni Rometty will do hers, Evolve as the world evolves.
Hewlett and Packard started out making scientific instruments. Their venture into computers was a buyout of a minicomputer company to supplement their calculator business and help run instruments. It gradually grew into a small business support product near the end of the 70's with small timesharing systems. Engineers and scientists loved the instruments and the computers were quite good for running experiments.
They trashed all that when they purchased Compaq to become the #1 PC maker and sold the instruments business. The innovation was lost and they turned into simply a PC and printer company with plenty of competition to worry about. They lack the DNA they once had and will never be the same.
I used to be a big admirer of HP's engineering approach (while it had one). Only time we had worries about HP kit in the old days was when the computer room airconditioning failed and ambient temps went up to 50 deg C*.
The engineering-first approach was first diluted, and then - I think - disposed of in the split that resulted in the instrument part of HP becoming a separate firm (Agilent?). Since the HP brand is now associated with shiny but crap laptops and rip-off consumables, maybe those bits of the company that are still guilty of sound engineering should be sold to Agilent and we can hold a funeral for HP.
* I'm glossing over the stange anomaly of the Buggedwriter printers that helped our users appreciate just how reliable everything else was (in those pre-Windows days), and ensured that HP's service engineers visited our site on a regular basis (several times a day, even).
** there must have been some part of HP that was engineer-driven as recently as 2008 - the HP 2133 netbook was a real blast from the past - beautifully engineered, but only 90 mins battery life.
Oh how times at HP have changed from the HP way.... What a story that was....
As a Millennium grad at HP, i forever remember the reception at Amen Corner, Bracknell having Carly Fiorina's publicly available (google it) marketing photo hanging adjacent to the staff security glass turnstiles as you walked in. Black permanent marker pen anyone?....Compare this to HP Pinewood down the road where until its recent close you had a 70's hand painted portraint of Bill & Dave, defining the company's engineering roots.....How times changed. Did I mention i got a final written warning for uplifting HP list prices to maximise their minimum margin goals as I was instructed to do so by management? I left on my terms, not theirs, I never looked back. Good riddance i say. I love my Epson printer, Apple Tablet, blah blah blah, the list goes on.... Actually they used to make serious calculators back in the day..... Probably should re- hp invent the wheel.. Wait that was a Carly spun marketing blur..... ;-)
I watched while HP got transformed from the most respected geekware manufacturer to a flogger of flossy consumer junk. Oh the heady days of breaking in a new HP Tone Generator and turning it into an AM transmitter. I pinned the decline on Carly Fiorini's egomaniacal mismanagement but machts nichts. If it went private back into the families' hands, it would make a great heroic tale full of kick-ass O-scopes.
I agree with the idea of getting a leader with an engineering background back in charge. Too many folk running tech companies who would need help setting up a DSL modem, whose geek quotient is somewhere south of Pope Benedict's. German auto makers are mostly run by car nuts with an engineering qualification of some flavour. GM was run by mid-western sales types and bean counters for eons - lookit the shite they managed to crank out.
HP needs business savvy tech nerds, not side-parting MBA program clones. And yes, cast away that bloated VP layer.
As an ex HP employee what amazed me was how Fiorina and subsequent CEOs didn't get the best from a supberb bunch of people. I remember when Bill and Dave stepped in whilst John Young was running the show because it got too bureaucratic and turned it round. What a waste of a great corporation! Now if HP could get its act together and become the supplier of good IT systems that acutally worked the way the customers hoped it would, just think how much money it could make.
But I will not forget how my first personal color printer was $5K. I have replaced it after 12 years with a $350 color printer, also from HP, which seems to be working well after 4 years, even if I don't print that much.
What I can't stand is their computers. Inexpensive, but poor quality.
>What I can't stand is their computers. Inexpensive, but poor quality.
What the Tim Burton like advertising font doesn't divert your attention away from laptop keyboards and displays failing within weeks of the warranty ending? (if your lucky and didn't have to send in several times before)
HP's just plain got long-in-the-tooth. They make poor acquisitions, their products are commoditized and their services are not very distinguished. I'd like to agree with the people above, who say that spinning off Agilent took away the best part of the company, but Agilent is a dog these days as well, slowly getting consumed by software-based replacements for the instruments it makes.
Vulture capital unfortunately seems to be one of the few ways to keep corrupt management who appoint their buddies to the board on their toes. With all the rules imposed on and inherent dilution (own an S&P 500 fund, you are a (tiny) HP shareholder) of the middle classes mutual funds and pension funds its not like a large portion of the shareholders have a true say on what management does.
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