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Are HP's Quality Control Issues A Sign Of Something Worse?


Hewlett-Packard Co. (NYSE: HPQ) announced that it would be expanding a recall of certain laptop batteries, 162,600 in total, after the company received more reports of overheating.

This is the third time the company has recalled laptop batteries, each in May of the previous years. In total, 286,000 batteries have been recalled. HP is having an image problem, as the company tries to figure out just exactly what it is, and this is no help.

The recall was announced through the U.S. Consumer Product Safety Commission. As CEO Leo Apotheker continues to deal with Apple (NASDAQ: AAPL), and Lenovo eating away at the company's market share in PCs, shareholders are getting hit hard, to the tune of a 12% loss this year. Moreover, this is a near 20% loss over the past 52 weeks.

The company over the past year has received 40 additional reports of batteries overheating and rupturing, including seven people being burned, and one actually suffered smoke inhalation. This is a disaster for the company, and needs to be fixed as soon as possible.

It seems like the reign of Apotheker has been snake bitten since he got here, and this is just another negative against him.

If investors believe that the recall, which includes batteries for HP Pavilion, Compaq Presario, HP and HP Compaq computers, is going to affect HP shares negatively, then shorting the name may be a profitable trade. Shares are cheap, trading at 9 times earnings, so there may not be much downside left to the name, but every time you think it can not get worse, it almost certainly does.

The quality control at HP is a major issue and until the company can prove that it can get its act together, investors would be wise to stay away or potentially short it.

Posted-In: Leo ApothekerShort Ideas Tech Trading Ideas Best of Benzinga


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