Should Hewlett-Packard Break Itself Up?

 
on December 07 2012 10:06 AM

As its share price has declined, the value of Hewlett-Packard (NYSE: HPQ [FREE Stock Trend Analysis]) has sunk below the $31 billion it has spent over the past five years on takeover targets. The company is now worth a little more than $27 billion.

Much of the blame can be placed on the aggressive acquisition strategies of a slew of CEOs H-P has had in the past ten years. Former CEO Carly Fiorina completed the purchase of Compaq Computer in 2002, but was relieved of her role in 2005 after profits generated from the acquisition did not meet expectations.

Two CEOs later, Leo Apotheker, oversaw the acquisition of Autonomy, a developer of data-mining software. Last month, H-P claimed that Autonomy committed accounting fraud, and had to write down the value of Autonomy by $8.8 billion after the purchase last year.

All told, in the five years since December 2007, H-P has spent $31 billion only to see its value plummet and sales decline. Current CEO Meg Whitman even estimated that profit in 2013 will be less than what analysts currently predict; around $3.40-3.60 earned per share.

H-P's enterprise computing group –- which supplies servers, storage, and networking products –- brought in $20.5 billion in sales last year. Meanwhile, PCs and printers sold by the company made up 49 percent of 2012 sales, with some estimates pricing these two divisions of the company at a combined $15.6 billion.

Bloomberg estimates that H-P's product divisions represent a theoretical share price of $20, but currently H-P's stock is currently only trading around $14.

Some analysts believe the company should sell off its computer and printer divisions and reinvest the proceeds into the profitable enterprise computing group. Apotheker attempted to do just that, announcing that H-P would spinoff its PC business last year. However, when Whitman took the helm, she immediately bailed on that plan.

Short seller Jim Chanos, who identified H-P as a "value trap" earlier in the year, recently told CNBC that he remains short.

While Whitman remains positive, the track record of the current board is unmistakably one of immense value destruction. If shares continue to head lower, drastic measures may be a foregone conclusion.

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