Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next
Author: sonofed Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14486  
Subject: Re: FKA: HP Date: 5/23/2011 8:55 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 7
There are a couple problems I have with HP.

In my experience, their "go to market" is inefficient. They don't have or encourage loyalty in their channel. Their channel partners are typically reduced to commodity brokers working on skinny margins and there is the ever present - and quite real - threat that HP will just take the deal directly for themselves if it's large enough. Channel partners are a sales multiplier, dramatically increasing the number of feet on the street evangelizing your products and finding new opportunities. Having a poor relationship with the channel cuts you off from that multiplier. While you're on top and the only game in town, resellers will still sell your product. Once they find a higher margin alternative however, look out.

Furthermore, their direct account coverage model is completely broken. They have a sales teams responsible for x86 servers, another one for storage, another one for UNIX servers, another one for networking, another one for services, etc, etc, etc. None of these teams are paid on the activity of the other teams and have no incentive to cooperate. There is not single point of contact for customers to call or to develop relationships with. This structure causes HP to miss opportunities, to confuse customers, and to struggle to articulate an architectural message. It makes them very weak as you climb the stack into the C suite and makes them vulnerable to competitors getting a foothold in their accounts.

Additionally, recent comments by Apothekar make me wonder if he's out of touch. Cisco announced they have achieved a $650M annual run rate in X86 servers. Apothekar said he never sees them and they must be selling the servers on planet Zircon. Granted $650M is only a small fraction of the overall X86 server market, but it's still $650M in lost HP revenue. I would expect him to take it more seriously.

A recent article in the WSJ said Apothekar recently released guidance to his sales teams that he wouldn't accept anymore negative margin deals this quarter since margins need to be the focus. If negative margin deals are so prevalent that you need to make a special rule about them, that's a problem. I can see accepting a loss on a strategic project or on one aspect of a particular customer's spend in order to lock out a competitor and protect margins elsewhere, but not across such a wide spectrum of projects that the CEO has to call it out.

I think they are also dealing with the legacy of Mark Hurd. He all but killed R&D while he was CEO to boost margins. That works in the short term, but in the longer term it leaves the company out of position and exposed to more strategically minded competitors. Apothekar promised to boost R&D spending when he took over, but the realities of HP's revenue and margin position made that very challenging and he hasn't been able to pull it off yet.

The sense I get from HP is that they are a company in search of a direction. As they cast around for the right mix of product and services and the right go to market strategy, I think they'll struggle to deliver consistent results.

A P/E of 7.5 is pretty attractive if you assume the $5/shr in earnings is a solid estimate. I'm not sure how they sustain that over the next couple years given that they want to boost R&D spending and assuming they still try to pursue all the markets they are currently chasing - including the ones that rely on negative margins.

Steve
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement