WSJ weighs in on HP

Text in black is mine; text in blue is the Wall Street Journal's; text in red is FTP Online's.

http://www.ftponline.com/weblogger/forum.aspx?id=1&Date=1/26/2005&blog=#311

"Many knew it at the time, but now everyone should: Walter Hewlett was right."

Hewlett was the board member from the founding family who argued that the Compaq merger would depress HP's stock and make the company overly reliant on the PC industry with its negligible or nonexistent profit margins. Since then HP has laid off thousands of workers and has a 55% decline in its stock price to show for those sacrifices.

"Since the merger, HP has lost market share and failed to revive its profit margins. It relinquished the #1 position in market share of personal computers last year to Dell. The Compaq merger hasn't helped in other areas either. In the 12 months ended in September, IBM and Dell gained share in network servers, while HP fell to 26.6% from 28.7%, Morgan Stanley says. HP's operating margins in business services have fallen for two years."

http://www.ftponline.com/weblogger/forum.aspx?ID=1&DATE=01/27/2005&BLOG=#313

"At bottom, they made a huge error in asserting that the merger of two losing computer operations, HP's and Compaq's, would produce a financially fit computer business. The irrefutable evidence on how wrong they were is contained in the two companies' own merger proxy, which precisely laid out the healthy operating margins that the combined company expected to be earning in its 2003 fiscal year (HP's ends Oct. 31) on its computer operations. The margins weren't earned then, and in 2004 they weren't either—not by a long shot. Only the prodigious, money-coining strength of HP's star business, Imaging and Printing (better known as 'printers'), has kept the company looking respectable."

Public accounting standards could force HP to write off $14.5 billion in goodwill allocated toward the value of Compaq. HP is carrying $15.8 billion in goodwill [that's the excess of purchase price over book value for an acquisition] on its books.

Twenty top executives have left in what some call a brain drain, and the legendary HP culture has been deliberately destroyed to be replaced by an "East Coast management culture." But the fundamental problem is that HP is not a leader in any of its markets other than printers. Fiorina recently decried the media's and analysts' inability to see HP as a software company, yet she has virtually gutted all marketing for HP's software.