Hewlett-Packard Overreaches on M&A, Breakup Rumored

The value of Hewlett-Packard Company

has sunk below the $31 billion it has spent over the past five years on takeover projects. The company is now reportedly worth $27.2 billion, though it was valued at more than $100 billion as recently as 2011. Much of the blame can be placed on the aggressive acquisition strategies of a slew of CEOs Hewlett-Packard has had in the past ten years. Former CEO Carly Fiorina completed the purchase of Compaq Computer Corp. in 2002, but was replaced as CEO in 2005 after profits generated from the acquisition did not meet expectations. Later on, then-CEO of HP, Leo Apotheker, oversaw the acquisition of Autonomy Corp., a developer of data-mining software. Hewlett-Packard 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, HP has spent $31 billion only to see its value plummet and sales decline. The fiscal year ending in October saw revenues down by 5.4 percent since 2011, the biggest single-year drop since 2001. Current CEO Meg Whitman even estimated that profit in 2013 will be less than what analysts currently predict; around $3.40 to $3.60 earned per share versus other estimates as high as $4.16. HP'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. The combined profits of all of HP's product divisions represent a theoretical share price of $20 per share, but currently HP's stock resides at only $14 per share, essentially nullifying a significant portion of the company's value. Analysts think the solution to HP's problems is for the company to sell off its computer and printer divisions and reinvest the proceeds into the profitable enterprise computing group so that the company can reach its potential. HP remains undeterred by speculation, though. Michael Thacker, a spokesman for HP, said in an e-mail that the company has multiple valuable franchises, and that there are many benefits to keeping all of their divisions under one roof, including the supply chain and collaborative R&D projects. Despite additional affirmation from Whitman herself that the company can weather the crisis while remaining whole, the numbers are painting a different picture. With declining profits, the overreach on acquisitions, and a stock that has plummeted 46 percent this year, drastic measures of some form are likely to occur.