BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Is HP The Market's New Falling Knife

This article is more than 10 years old.

A day after reporting an embarrassing $8.8 billion charge stemming from its purchase of Autonomy late last year, shares of beleaguered tech giant Hewlett-Packard slightly rebounded by 2.5% to $12.00 after hitting a 10-year low of $11.35 on Tuesday . This has prompted many investors to wonder perhaps all of the negativity surrounding this news has now been absorbed. As much as I want to believe that shares of HP are undervalued at current levels, I just don’t see how the stock is not a falling knife at this point.

In assessing the future of HP, evidence suggests that things will get much worse before they get better. In fact, the company’s CEO, Meg Whitman warned investors of this possibility just a little over a month ago. She cautioned that HP’s business segments were in a steep decline and advised that investors shouldn’t expect much improvement for all of 2013 as revenues were expected to decline in every area except software.

As disappointing as the $8.8 billion charge might have been, as I noted in an article yesterday – it meant very little in terms of the company’s prospects. There wasn’t anything that HP was going to be able to do this year or next to put itself in a better position to compete with Apple, Google and Samsung. By its own stubbornness, the company has lost its way and seemingly has no clue what its next good idea is going to be.

Even more disappointing is that HP can no longer leverage its enterprise footprint. Although its services and printing business are doing well, the company is not able to show enough growth in these areas to offset it abysmal showing in its low margin areas. Still revenue from its service business is expected to drop by 11% to 13% for fiscal year 2013. In other words, forget profitability – particularly with margins expected to possibly range from zero and go only as high as 3%.

Nonetheless, I’m still a believer – even though the stock has now lost over 40% under her watch. On the other hand, I can appreciate the mess that the company was in when she took over late last year. For that matter, I am willing to give her a pass for a few more quarters, but the company has to figure out a way to produce more top line growth and build products that consumers want to buy. One of the ways it can achieve this is by considering a breakup.

Although this is not often a popular idea, it is one that will make the company appear more nimble and give it more growth options. Still until it figure out a solution, HP will find itself losing market share to the likes of Cisco, Dell, IBM and Oracle – all of which have had their own problems with execution at some point. I suppose from that standpoint, there is hope for HP after all. But time is running out.