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Hewlett-Packard
Old 08-22-2011, 02:24 PM   #1
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Hewlett-Packard

I'm curious what people think about Hewlett-Packard and the slaughter they got last Friday. They went down around 20%. I think they really flubbed up the communication, but I think they were oversold.

I think getting out of the PC business is a good idea as long as it doesn't drag on their ability to sell higher margin stuff like printers, servers, services, etc. The PC business may be worth having if it gets their foot in the door on sales that they may not otherwise have easy access to. I'm sure this has all been though out. Getting rid of the PC business didn't hurt IBM after all.

I don't think the Palm screwup is that big of a deal. I'm guessing the patents they got will be worth the $1 billion alone given the action around nortel and motorola patents recently.

The $10 billion software purchase seems fine to me as well. The thing about this purchase and the skype pruchase by M$ not long ago is that they are using foreign cash to buy these assets up. So, I figure they don't care if they pay 35% too much for them as they can't repatriate that money to the shareholders without paying 35% tax on it. I think this is why both of these two purchases were/are so rich.

I put in a limit order this morning before going to work 100 shares limited up to $24 per share. Unfortunately, I don't think my order will be hit. Maybe I will bump it up to $25 when I get home and see what happens the next day.

I agree with their strategy and like their strategy, provided getting rid of PCs doesn't hurt their sales of other stuff. What do you all think?
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Old 08-22-2011, 03:49 PM   #2
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It seems to me who ever can write the best OS for smart phones and tablet PC is going to be the next grand slam. Also, who can manufacture lightest and long lasting battery is going to be the hit. I'm thinking HPQ has developing software in mind when they are purchasing software company.

If I knew what I know about Microsoft back in the hay days, I would have been zillionaire. It was tough buying stocks in a company with words micro and soft if you are a man.
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Old 08-22-2011, 05:00 PM   #3
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Reading up on HPQ some more, I think they are incredibly undervalued. They are the number one or number two in: printers, servers, storage, pcs, network equipment, and IT services. It also looks like they have been buying themselves some nice software companies in specific nitches. All this and a market cap of only 50 billion.

I just don't see how HPQ can be 50 billion while you have for example GOOG at 160 billion. Not knocking Google but I would rather have HP's business than Google's, which is entirely reliant on selling web adds.

What am I missing?
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Old 08-22-2011, 08:18 PM   #4
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Reading up on HPQ some more, I think they are incredibly undervalued. They are the number one or number two in: printers, servers, storage, pcs, network equipment, and IT services. It also looks like they have been buying themselves some nice software companies in specific nitches. All this and a market cap of only 50 billion.

I just don't see how HPQ can be 50 billion while you have for example GOOG at 160 billion. Not knocking Google but I would rather have HP's business than Google's, which is entirely reliant on selling web adds.

What am I missing?

I'd rather have GOOGs managment than HPQ. By most accounts the cultural advantage of the HP Way has gone away is never coming back.

I'd also much rather have GOOGs profit margins and knowledge about internet users than HP printer business and network business against some tough competitors. All that said you maybe right the relative value of the two companies probably is reflected in the market caps, and HP quite possible is oversold at this point.
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Old 08-22-2011, 09:13 PM   #5
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I hope you're right. I picked up four thousand shares on Friday. Also sold ten Sep-23 strike puts for 1.45. Right now HPQ is hated by investors, a lot of which IMO is due to Apotheker, who appears to have no real clue about how to manage the financial press. Nevertheless, at five times next year's estimated earnings, I think the stock is unbelievably cheap. Wouldn't it be a pistol if Oracle bid $35 a share for HPQ? Sweet revenge for Mark Hurd.
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Old 08-22-2011, 09:29 PM   #6
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Those puts are juicy!!
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Old 08-23-2011, 09:21 AM   #7
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Reading up on HPQ some more, I think they are incredibly undervalued. They are the number one or number two in: printers, servers, storage, pcs, network equipment, and IT services. It also looks like they have been buying themselves some nice software companies in specific nitches. All this and a market cap of only 50 billion.

I just don't see how HPQ can be 50 billion while you have for example GOOG at 160 billion. Not knocking Google but I would rather have HP's business than Google's, which is entirely reliant on selling web adds.

What am I missing?

That Google can make a boatload of money with little costs... HP can not...

Not knocking either company... but who thinks Apple is the most valuable company in the world Lots of people do....
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Old 08-23-2011, 09:47 AM   #8
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Another fine, family-run company that hired a succession of empty suits after the founders retired/passed away. The current guy at HP started this year saying how he was going to go after Apple in the consumer space and then within six months, it's all about corporate services. In other words, he doesn't have a clue and he's playing catch-up, but he can afford to because his salary and bonuses are nicely backed up by the cash cow which is their printer business.
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Old 08-23-2011, 12:29 PM   #9
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I put in an order for 200 shares this morning before work, with a limit up to $26. Looks like the high so far is $24.73.

I did more reading last night and think it was well worth the gamble. The price to book is almost 1 and price to earnings around 6.

It would be pretty funny if Oracle ends up purchasing HP. Lots of wild possibilities.
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Old 08-23-2011, 01:26 PM   #10
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Also sold ten Sep-23 strike puts for 1.45.
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Those puts are juicy!!
They do look interesting. I dipped my toe in (just 3 contracts) and the Sep-23 strike puts were down to $0.93 by this time, but I went for it.

Seems to make sense to pick this up 12 ~ $22, or just collect a ~ $1 premium for a month (~4.5%).

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I put in an order for 200 shares this morning before work, with a limit up to $26. Looks like the high so far is $24.73.

Is that correct? You are trying to buy with a limit order higher than the current offer?


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Old 08-23-2011, 03:10 PM   #11
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Is that correct? You are trying to buy with a limit order higher than the current offer?
-ERD50

Maybe this is a bad way to do it, but essentially it is a market order with a cap on how much I am willing to pay... I can only put in an order before I head off to work. So, I have no way to know what the market price will be.

I am too chicken to put in a market order blind. There can be huge price changes. This way I know I won't pay more than $26 max.
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Old 08-24-2011, 10:11 AM   #12
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Maybe this is a bad way to do it, but essentially it is a market order with a cap on how much I am willing to pay... I can only put in an order before I head off to work. So, I have no way to know what the market price will be.

I am too chicken to put in a market order blind. There can be huge price changes. This way I know I won't pay more than $26 max.
OK, it sounded strange to me, but it makes sense in that scenario. You wanted to buy it, but didn't want to pay more than $26, and couldn't watch it. Gotcha. Thanks for the explanation.

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Old 08-28-2011, 06:19 PM   #13
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I worked at HP for 24 years from 1982 to 2005. I won't own any of their stock. Reason: They took a company built by Bill and Dave, who valued employees above all else, and converted it to a company that values stockholders above all else. Now, HP routinely downsizes, lays employees off, and otherwise reduces their benefits. Many employees left (including me) and are now working elsewhere. Who do you think gets left behind? Cream of the crop? No... its the other side of the coin.

HP is fast becoming the Sears and Roebuck of this century. Not only are products built overseas, but they are now frequently designed by engineers overseas to specifications provided by engineers in the US. We've become a set of engineers who do nothing but specify products? What a shame... If this is the way of the future, perhaps the gold holders have it right as all of our companies would be doomed. I don't believe this, don't own any gold yet, and will stick with US stocks and bonds. I also take a hard look at products that I need, and try to buy "Made in the USA" whenever possible. It isn't easy to do.
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Old 08-28-2011, 07:10 PM   #14
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I worked at HP for 24 years from 1982 to 2005. I won't own any of their stock. Reason: They took a company built by Bill and Dave, who valued employees above all else, and converted it to a company that values stockholders above all else. Now, HP routinely downsizes, lays employees off, and otherwise reduces their benefits. Many employees left (including me) and are now working elsewhere. Who do you think gets left behind? Cream of the crop? No... its the other side of the coin.

HP is fast becoming the Sears and Roebuck of this century. Not only are products built overseas, but they are now frequently designed by engineers overseas to specifications provided by engineers in the US. We've become a set of engineers who do nothing but specify products? What a shame... If this is the way of the future, perhaps the gold holders have it right as all of our companies would be doomed. I don't believe this, don't own any gold yet, and will stick with US stocks and bonds. I also take a hard look at products that I need, and try to buy "Made in the USA" whenever possible. It isn't easy to do.

I have yet to hear from a long time HP employee or HP analyst who hasn't express the exact sentiment that you've said. The revolving door at the top coupled with some of the most amazing board room soap operas ever has destroyed the credibility at the top. I think a dozen years of really bad CEO has appeared to have destroyed morale in the middle and at the bottom. Even in the go go 80s and 90s HP attracted good talent. The Steve Jobs and Wozinaks didn't last long there, but I bet HP had way more than its share of Eagle scouts .

The company had such sterling reputation in the Silicon Valley, that when my best friend who was an IP lawyer told me that he was representing somebody suing HP and describe what they had allegedly done, I told him "no HP wouldn't do crap like that". He rolled his eyes and said your attitude is precisely why are trying so hard to change the venue. Needless to say knowing what the folks at the top have done, I'd no longer say that . I just wonder what type of young engineer wants to go work for HP anymore.

Anyway the number make HP stock look like like a great value, but I'd be concerned that numbers may not tell the whole story.
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Old 08-29-2011, 10:33 AM   #15
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snip... I just wonder what type of young engineer wants to go work for HP anymore.

Almost any coming out of college... or any that has not had a job for a long time...


HP is no different than probably 450 of the S&P 500 (and may be closer to 490 of them)...... sure, they talk a good game about employees etc. etc.... but at the end of the day they are about making money... the more the better...

I was an intern for IBM way way back when... it was still in the day when they did not lay off anybody..... that changed the year I was there and IBM is still going strong... HP will still be going strong 20 or even 50 years from now.... (unless of course it gets bought by someone)....
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Old 08-29-2011, 05:30 PM   #16
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Almost any coming out of college... or any that has not had a job for a long time...


HP is no different than probably 450 of the S&P 500 (and may be closer to 490 of them)...... sure, they talk a good game about employees etc. etc.... but at the end of the day they are about making money... the more the better...

.
There is a difference between young engineer accepting offer at place cause they need a job and wanting to work at company even if it means a lower salary and/or longer salaries. HP used to be in the 50 that was different.

Yesterdays Journal had this article
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Let's say you were given a year to kill Hewlett-Packard. Here's how you do it:
Fire well-performing CEO Mark Hurd over expense-report irregularities and a juicy sexual-harassment claim that you admit has no merit. Fire four board members, as publicly as possible. Foment a mass exodus of key executives who actually know how to run the giant computer company.
Hire new a CEO from German competitor, SAP, which sells business software, not consumer products. Tell the new CEO, Leo Apotheker, that Mr. Hurd "left H-P in great shape."

Draw public criticism from a major corporate-governance advisory firm, alleging Mr. Apotheker filled board openings with cronies.

Pursue pricey mergers and stock buybacks. Allow expenses to run out of control. Try to blow through billions of dollars in cash reserves before the next global economic slowdown.

Provoke partners Microsoft and Oracle by threatening to put H-P's own operating software on PCs. Then decide not to.

Remember that promising webOS software H-P bought in a $1.2 billion acquisition of Palm last year? Sideline it.

Bristle when Oracle's Larry Ellison tells the New York Times: "The H-P board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs." And file lawsuits when Mr. Ellison hires Mr. Hurd.

Boast that you're going to attack Apple's iPad with your $499 TouchPad. Then dump your TouchPad in a $99 fire sale and announce you're just not going to offer it anymore.

Telegraph to the world that you are just too dumb to make smartphones.

Raise your financial estimates, twice. Then miss them, twice.
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Old 08-29-2011, 11:38 PM   #17
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Clifp,

Well done!

You can add a bunch of invisible small issues like declining employee morale and constant mid level changes of directions. Should we own the low end market for printers so we can access the high end market for its profits? HP has changed this direction many times over the past 10 years. Can't get it right either way.

My prediction. Gradual degradation of the stock to lower and lower values as the company continues to slowly spin down with the loss of key talent.
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Old 08-30-2011, 09:14 AM   #18
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I figure all gigantic multinational corporations behave about the same...

My average cost basis is around $24.50. I only own 220 shares, but I plan to get it to around 500 shares if the share price stays low. Around $10k principal invested in a single stock is about my max that I am willing to invest in any single stock.

Most of my money is in vanguard mutual index funds. I think the market gets it wrong all the time... However, market-cap indexes are an easy and relatively safe way to invest. I like to dabble in individual stocks partly as investments and partly as a hobby.

I think at $24.50 the downside risk is low for HPQ, but we shall see!

Another stock I have my eyes on is BlackRock (BLK). Whenever there is slow growth, investment management companies will get smacked around. Also, lots of people trade Finanacials as a whole. So you will get companies like BLK driven down just because of BAC and C.

I'm sure many of you are familiar with their iShares products.
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Old 08-30-2011, 08:26 PM   #19
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You all see the announcement that now they may make another touchpad?

One of their biggest problems is they have no direction or internal consistency at all.
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Old 09-11-2011, 11:05 PM   #20
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HPQ 9/9/2011 drop 5.11%
HPQ 1 month through 9/9/2011 drop 24.29%
HPQ YTD through 9/9/2011 drop 44.15 %
Additional layoffs? Announce a spin off before finding a buyer? What else?
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