HP dumped from Dow Jones Industrial Average Hewlett-Packard may still pull more than a hundred billion dollars a year through the door, but that's no longer enough for the company to win a place on the Dow Jones Industrial Average, (DJIA) the venerable and prestigious basket of 30 stocks held to represent a vital sample of American listed companies. HP's removal from …
This has implications for the share price. Many funds 'track' the DJIA, which forces them to invest in its constituent stocks.
Actually from what I've read elsewhere then there is relatively little investment that tracks the DJIA due to the "odd" way in which it is constructed - its based on the share price of the 30 constituent stocks so is not directly related to market capitalisation (i.e. small company with relatively few shares and thus relatively high price per share can have more impact that a huge company with large number of issued shares and thus relatively high price per share when in terms of an economic indicator the large company is much more relevant) - also, due to it being based on share price it has either dropped or never included some companies like Apple and Google as their share prices would dominate the index.
Anyone wanting to track an index would not choose the DJIA despite it beign the index that everyone knows about. In the UK its slighlty different as the stock exchange noted some of these problems with the original UK FT-30 index so generated a new index based on top 100 quoted firms weighted by market capitalisation ... after a minor legal skirmish on whether the FT had inventors rights to such an index it was called the FTSE. Though that too has issues as it is dominated by global firms so while many tracker funds track the FTSE100 many others use the FTSE250 which tracks next 250 companies or even the all-share index as these can be better indicators of UK performance.
Historically there were a few indices like the DIJA and the corresponding FT-30 since they required effort to construct and publish - but now in the electronic age its simple to do this ... looking at Dow Jones they have 100s of indices now.
Hollow out all the engineering and development to cut costs; in the short term this will drive the share price and appease investors, long term it destroys the company; HP is a text book example. Hope they write a chapter for all those business degree courses. 2 of the worst tech CEO's in history: Carly Fiorina and Mark Hurd
I just hope Microsoft's new CEO does not embark on the same strategy.
The major damage was done under Hurd, who seemed to be under the impression that you could cut your way to prosperity; you can't.
However I don't think he destroyed the company; HP still makes $1bn+ (net) per quarter and will not disappear anytime soon. Lack of growth will be the problem, with a shrinking PC market and nothing game-changing from HP to counter that.
" HP still makes $1bn+ (net) per quarter and will not disappear anytime soon."
When a company starts heading south, changes can come suddenly. Looking at HP accounts, revenues, costs and gross profits are all almost exactly where they were five years ago. But over on the balance sheet, shareholders equity is worth a lot less, and debt is three times what it was five years ago, and back on the P&L, net profit is almost the same as five years ago, with the simple and unfortunate difference it now has a minus sign in front of it. On the cash flow, cash from operations has declined by about 8% year on year for five years, representing almost $1bn less cash being generated from the "real" business each year.
Dell will soon disappear from the markets. Given their appalling performance HP could well be next. Activist investors and PE houses will be watching with interest, and if the useless, useless HP board would care to look over the gunwales of their ermine trimmed lifeboat, they'll see fins circling their boat. The usual response of HP management to having their boat rocked is to throw a few thousand employees into the water, but as the operating cash and debt numbers show, the day of reckoning approaches.
HP will have to break itself up, or somebody else will buy it and break it up, and evictions from benchmark indices continue the weakening of HP. Whether the divisions can be made good standalone companies, or they will just be sold piecemeal to competitors I don't know. The printers business is not too bad in HP performance terms (although both consumer and enterprise printing products look crap to me), the server business is doing OK. But the PC division needs to spun off to its own fate, as does the enterprise services BPO business. They may as well exit "distraction businesses" like financial services and software, as these are too small to make a difference despite the better margins.
All of which would be to say that HP needs to go back to its roots in business IT and printing. The whole "me too" nonsense of trying to stay competitive in PC making through acquisition has been a failure, the "me too" attempt to build a software business has been a failure, and the "me too" attempt to build a BPO operation has been a failure. Enterprise IT services seem to be profitable, but like the printers, the user experience stinks. I don't think the HP board have the wit or the gumption to see any of this, and I don't think that they have the determination or skill to improve the server, IT services, or printers businesses, having long ago cast off the skilled people who might have made the future different.
This happening in every industry that had large engineering/technical departments. It's all for short term gain and hurts all these companies ability to deliver the products and services that are these companies business.
The fact that these companies long term viability is being seriously harmed doesn't seem to matter to investors. Which makes me wonder what if anything the large investment companies that are supposed to evaluate these know. I suspect, like all financial industry companies, they don't know much.
Equally accurate would be to say "Legacy of McKinsey" since the board relied heavily on McKinsey consultants during both Fiorina's and Hurd's terms in charge. However, I'm sure they have an excuse for why it didn't work out the way their PowerPoints predicted.
"Equally accurate would be to say "Legacy of McKinsey""
Interesting you say that - I did think about mentioning how so many of the fads that HP's management followed (M&A your way out of trouble, Offshoring, BPO, "move into software, the water's lovely", etc) were probably influenced by wretched and useless management consultants, expensively peddling stupid ideas to directors who aren't big enough to say "no".
Indeed, when you look tound at floundering mega corps, all too often you find that they ignored their own people, hired some "blue chip" (Ha!) management consultants, and then let a bunch of highly intellectual yet inexperienced Ivy league or Oxbridge graduates come up with utterly stupid ideas like "matrix organisations". Which didn't work for Nokia, didn't work for P&G, didn't work for the mega corp I'm employed by, didn't work for Citi, didn't work for P&G, and evidently didn't work for HP. The lastest fad from these sorts of charlatans is the "Target Operating Model", in which people with no experience, no expertise in benchmarking, and no common sense tell the company how many people it needs to do the job, leading to more lay offs and further damage to customer service and reputation.
Should any of the readers of El Reg ever get to board level, remember that management consultants will buy you a very good lunch, but these people are your ENEMY. If you have organisational challenges, only you arnd your colleagues may get the answer, but never some bunch of spotty kids who have never done a proper job in their lives, and who won't be around when the resultant neglect of common sense, customers and the core business comes home to roost.
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