It's time to admit that IBM won at being No. 1
November 30, 2012
It's taken more than 10 years for all of the votes from the business community to be counted. But after HP launched into a campaign to become the world's largest computer company, by buying Compaq in 2001, the enterprise IT legend that HP's chased has finished at No. 1.
Not in company sales, of course. As Kane's financial manager Mr. Bernstein says in Citizen Kane, "Well, it's no trick to make a lot of money... if what you want to do is make a lot of money." The trick HP wanted was to make a lot of profit while increasing shareholder's value. This week we received two pieces of news about that odyssey to be No. 1. Both suggest the game is over, and HP will need to try to win the next, different game.
First, the bond rating service Moody's has downgraded the value of HP's debt paper to just three steps above junk bonds. HP's debt carries the steepest risk ever at a Baa1 rating. This didn't matter as much when HP held so little long-term debt. That's not the case today. About $25 billion in debt is affected, Moody’s said.
Second, the price of HP's stock has taken a tumble all through 2012. It's dropped so low in company valuation that Public Storage of America, a $1.8 billion storage unit renter, is now just below HP's valuation. Hewlett-Packard is the diving blue dot in the valuation chart, and PSA is the green. HP now needs 330,000 employees and $130 billion a year in sales to keep up with a storage unit company's value. HP lost that valuation that's charted there in a little more than one quarter. There seems little chance of regaining it while HP's built the way it is today. 2013's February 21 looks like a genuine fork in the road. HP reports its Q1 results that day.
In this week's New York Times, an op-ed piece written by a CEO contemporary of the Bill-and-Dave HP says it's time to split up Hewlett-Packard. Not to improve its valuation. To save the company, says Bill George, now a professor of management practice at Harvard Business School.
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