The Hard Choices Ahead for H.P.

The following is an excerpt from an article in 

The New York Times
Monday, August 27, 2012

The Hard Choices Ahead for H.P.

By QUENTIN HARDY

How soon before the next big, tough decision at Hewlett-Packard? It could be as early as October.

On Oct. 3, H.P. will hold its industry analyst day in San Francisco, when it is expected to spell out growth projections for the coming fiscal year, which begins Nov. 1. If those numbers are too low, or if Wall Street finds them improbably high, the stock is likely to fall.

That could create renewed pressure on Meg Whitman, H.P.'s chief executive, to do something radical. This is likely to mean further layoffs, another big write down or even a sell off of some of H.P.'s largest pieces.

Those are all radical moves, but the eroding value of H.P. makes the need for remedies hard to overstate. Between Tuesday morning and the close of trading on Thursday, H.P. lost some $4.8 billion in market capitalization, which in its current state was about 12 percent of H.P.'s total value. Since February, the company's stock market value has fallen 41 percent.

The current stock price of H.P. "indicates a company that is bankrupt in six years," said Amit Daryanani of RBC Capital Markets. While he did not think that projection is really prophetic, he thinks a breakup will at some point become possible. "A couple more quarters like Wednesday, and you have to ask if it's better to split up the company so some of the smaller companies can prosper."

Much of H.P.'s problem is a legacy of past successes, mixed with bad acquisitions. It is so big in things like personal computers, servers, and printers that little else matters. Those are growing slowly, if at all; on Thursday, the International Data Corporation projected worldwide demand for PCs would rise just 0.9 percent this year. Part of the reason, IDC said, is that many buyers are waiting for Microsoft's new operating system, Windows 8, which is expected in the fourth quarter.

For more, visit www.nytimes.com.