It was one of those weeks when you feel like you are stuck in time, like the obnoxious weatherman once played by Bill Murray in Groundhog Day, reliving the same scenes over and over.
Despite all the ominous warnings, Canadian banks posted earnings that defied gravity once more. And with profits topping the $6-billion mark at the five big banks that reported their results, almost all of their shareholders got their dividend-hike fix.
More déjà vu: Troubled computer maker Hewlett-Packard Co. gave the tablet another shot with the launch of its HP Slate7, hoping to bury the memory of the ill-fated TouchPad, which was pulled off the shelves after only seven weeks. It is the latest attempt by the Palo Alto, Calif.-based company to extricate itself from a misery so profound and long-lasting that business reporters have run out of images to describe it – the falling knife no longer cuts it.
Curiously, though, HP’s stock has been on a tear of late. It has jumped more than 75 per cent since its low of $11.35 (U.S.) in November. Since Nov. 20, it’s the second-best performing stock in the Standard & Poor’s 500 (after Netflix). That surge, which is partly explained by results that weren’t as horrendous as feared, doesn’t fool the analysts nor the investors that have seen the stock tumble from the $50 range in the past three years. HP is not out of its time warp.
Some shareholders are now clamouring to replace three directors at HP’s annual meeting in three weeks. Among them is chairman Ray Lane, who signed off – along with current president Meg Whitman, incidentally – on the disastrous $11-billion acquisition of U.K. software company Autonomy Corp., which was almost entirely written off last fall.
But the rapidly changing top management – Ms. Whitman is the fourth CEO in the past two-and-a-half years, while the board was revamped in 2011 – is one of HP’s weaknesses. New administrators, however shrewd, might only compound the instability which has reportedly led to the widespread departures of key staff, as if the venerable Silicon Valley company was a mere farm team.
Yet you can hardly blame investors for being impatient with a turnaround plan that would take five years to complete – which is akin to a century in the tech business – and under which earnings would only start bouncing back in 2014.
Ms. Whitman wants HP to remain a one-stop shop, where corporations can buy anything from a laptop to a data centre. But as much as HP’s CEO wants to distance herself from her predecessor Leo Apotheker, who made the ill-advised announcement that HP would exit the PC business before the deal was done, holding on to a commodity business like computer manufacturing seems like the best way to stay trapped in the ’80s.
While HP recently reclaimed its title of world’s top PC maker from Lenovo Group, according to Gartner Inc., it likely sacrificed some of its profit margin to accomplish this.
There is good reason why IBM sold its PC division to Lenovo in 2005 and is all the better for it now. PC sales are slumping, as consumers switch to tablets and smartphones.
HP is nowhere to be seen in mobile. In tablets, where it is late to the game, the lacklustre reviews of its new Slate7 illustrate how difficult it is for device makers to have a technological edge that seduces consumers. “HP’s latest beige box, only flat” read one headline on a story about the 7-inch device described as a “cheap tablet” with “nothing particularly special about it.” An “unspectacular Kindle,” said another, and so on.
There is little here of the innovative genius that marked HP’s early days.
Ms. Whitman is now considering some small divestitures for HP, whose 2012 sales reached $120-billion. However, she refuses to consider anything as radical as the breakup that UBS analysts recently advocated.
The investment bank suggests separating the division that makes PCs and printers from the one that sells software, services and hardware to companies. While some have dismissed such a break-up as a typical Wall Street transaction to reap a quick buck, the fact is the two divisions are strong enough to stand on their own and big enough to retain most of their purchasing power. What they would lose in clout, they would gain in focus.
Besides, what is the alternative? Pressing on as an unimpressive laggard? Trying to convince customers that while none of the HP’s products stand out individually, all of HP’s products put together form an okay solution that is secure and just appealing enough for corporate customers? It doesn’t sound like a winning strategy. In fact, it looks like Groundhog Day all over.