Although from many points of view it is logical for Hewlett-Packard to spin off its personal computer business unit and cease development of webOS operating system and gadgets, financial analysts and market observers condemn HP for the decision. So does the market.
At press time on Friday HP’s stock dropped by whopping 20%, which means that stakeholders lost over $12 billion of value in one day after the announcement of the decision to spin off or sell the PC business unit in a bid to concentrate on other businesses and improve profit margins. Financial analysts believe that HP acquired its new Autonomy division to boost its cloud initiative for a too high price and at a wrong timing.
“HP may have eroded what remained of Wall Street’s confidence in the company and its strategy with a dramatically lower financial outlook, a decision to cease all webOS devices (including the TouchPad) a mere 48 days after the launch, a decision to seek strategic alternatives for its PSG business (aka the #1 PC business in the world), and the seemingly overly expensive acquisition of Autonomy (cue the irony), said Richard Kugele, an analyst with Needham, reports Forbes web-site.
“While we continue to believe HP holds several valuable assets, we believe they will trade at a discount owing to management’s inability to deliver consistent strategic and financial messaging and results,” wrote Shannon Cross, an analyst with Cross Research.
“We are directionally positive on the shift to high-growth, high-margin business but this transformation is proving expensive, protracted and includes significant integration risk,” said Jayson Noland with Baird.
“We like the move towards software/cloud, but we believe the price is full and the sharp price decline reaction is what you could expect. We believe HP felt compelled to act and a large software purchase was what mgmt felt most comfortable with. We believe these decisions are necessary and likely to prove shrewd in the future,” wrote Peter Misek of Jefferies & Co., reports Barrons.
“Margins in HPQ’s most profitable segments continue to come under pressure, the services business is taking longer to turn around, and there may be better current uses of cash than acquiring Autonomy, given HPQ’s depressed share price,” Avi Silver of CLSA Asia-Pacific Markets.
Robert Cihra, Caris & Co.: Reiterates a “Below Average” rating on the shares, and cuts his price target to $30 from $38. “we CONTINUE to believe HPQ faces multiple structural headwinds that require tough fixes but without a lot of good options and nowhere near the tool-belt IBM (2*/Above Average) had when it pioneered such a path. We take at least some comfort in mgt at least FINALLY admitting problems (vs. our view targets had stayed too optimistic for too long, with HPQ spending too much of cash flow on buybacks rather than strategic moves) but nonetheless worry it’s still very early and any true turnaround will take years not quarters.”