The mighty Hewlett-Packard Company (NYSE:HPQ) was founded in 1939 by Bill Hewlett and Dave Packard. Working from a home garage, the two engineers managed to pioneer the art of technological innovation. For many decades, if you stumbled upon some great device, be it a printer or an IT device, most chances are that it belonged to HP. But today, the company is merely a shadow of its former self. In the past decade, HP has been constantly losing in the fight over technological superiority in all segments.
Why HP won’t survive
I strongly believe that HP won’t be around for long. It will be forced to close shop sooner rather than later due to these two strong catalysts.
Catalyst #1: Deteriorating sales across the board
For years, printers were Hewlett-Packard Company (NYSE:HPQ)’s crown jewel. In 2003 and 2004, Printing generated more than 70% of HP’s operating income. One of HP’s most profitable strategies was to partner with superb software companies like Microsoft Corporation (NASDAQ:MSFT), sell you a computer, and practically give you a printer to go with it. It could then make money selling you high-priced replacement ink cartridges. This worked well for a while. Today, though, the shrinking sales and margins suggest this business model is falling apart. The PC market is shrinking and Hewlett-Packard Company (NYSE:HPQ) is rapidly losing market share. And even if HP can make headway in the exploding tablet market, that won’t help the Printing division… people don’t print from tablets.
Let’s see how things stack up for the rest of its business.
The table above shows Hewlett-Packard Company (NYSE:HPQ)’s net revenue growth by segment over various time periods. No matter how you slice it, the results are horrible. Almost every segment is losing ground, over nearly every time period. Just to get a feel for the numbers, let’s compare HP’s results to those of Microsoft Corporation (NASDAQ:MSFT) and International Business Machines Corp. (NYSE:IBM). In the past year, Mr. Softy reported an impressive 23% increase in its Windows division, an 8% increase in its business division, and a whopping 56% increase in its entertainment division. IBM reported a 7% increase in revenue from its business analytic division, a minor 4% decrease in Services revenue and a whopping 70% increase in cloud revenue.
Catalyst #2: Lousy acquisitions
Hewlett-Packard Company (NYSE:HPQ) is a horrible serial acquirer. It buys just about anything that moves…and it likes to pay top dollar for it. In November 2012, a year after paying $11 billion for a software company called Autonomy, HP’s management announced that it had overpaid by about $9 billion… and that’s not the only example. HP bought Palm in 2010 for $2 billion, and EDS in 2008 for $13 billion. After the dust had settled and the excitement waned… Hewlett-Packard Company (NYSE:HPQ) was forced to write off $1 billion and $8 billion on these two recent acquisitions, respectively.