BBG Video: Should Hewlett-Packard Even Be in the PC Business?

My chat with @nicolelapin last night on @BloombergWest re $HPQ:

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Six Years Later, The Problem at HP is Still the Board

The HP board in 2012 is just as dysfunctional as it was in 2006.  Here's a reflection of how bad they were back then.

Read the full Forbes post

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Why Narcissistic CEOs Kill Their Companies

Whether you're an employee, an investor, or a CEO yourself, you need to read about these 2 recent academic studies of how and why Narcissistic CEOs can kill their companies.

Read the full Forbes Post

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Why Does America Keep Re-Electing Bone-Headed Boards Like HP's and Yahoo!'s?

Corporate CEOs get to pick their boards of directors to monitor them, then pay a lot of money (from shareholders) to maintain the status quo.

Read/watch the full post on Forbes

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The HP Board Hires Trusty Bankers to Protect It From Fiendish Imaginary Activist Investors

The HP Empire is under grave threat from peasant shareholders who actually want its stock price to increase. The board must not allow it.

Read the full post in Forbes

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Ray Lane Must Go at HP

How can you be the Chairman of HP after the last 11 months and give yourself a promotion? Ray Lane must go now.

Read the full post in Forbes

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Jackson Says HP's Lane Chose Whitman as a `Star CEO' to Take Heat Off Himself

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5 Things Meg Whitman Wants You to Forget

Some home truths about Meg Whitman.

Read the full post here on TheStreet.com

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HP's Board of Directors Is Pathetic

This HP Board has screwed up so many times, it's a joke.  They need to be completely dismantled.

Read the full Forbes post

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Putting a Price on Tim Cook's Value as Apple CEO

The case of Apple shows it is very hard to judge whether a corporate CEO is worth a lot of money or not.

Read the full post on Forbes

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How Much Are Palm’s Patents Worth Now?

Read my full post on Forbes.

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When Do You Buy HP?

By

ERIC JACKSON

| AUG 23, 2011 | 9:30 AM EDT

Stock quotes in this article:

HPQ

,

GOOG

,

NT

HP (HPQ) is perhaps the biggest Dog of the Dow these days.

The stock is down 43% year-to-date and seems to be universally hated at the moment after announcing plans to spin off its PC division, shut down its WebOS efforts, and buy a billion-dollar-a-year business for $10 billion.

So, after investors threw in the towel last Friday, should you look to buy in for a dead cat bounce?

No. There's still just too much risk tied up in HP.

The stock is likely in the dog house for at least the next six months, much the same way that Google (GOOG) was earlier this year after the company announced that it was replacing Eric Schmidt with Larry Page.

In my view, you can expect a further slippage in the stock for the next three-to-four weeks, followed up by five months of relative flatness. Over that period, you'll likely hear of key executives leaving the firm (like Todd Bradley, who heads up their PC division called PSG), as well as some further rank-and-file job cuts. None of that is going to prop up the stock.

I think you're also likely to hear about some more billion-dollar acquisitions in the coming months. If the HP board has done nothing, it's shown that they are not afraid to keep doubling down on a strategy, even if the mainstream media disapproves.

What will be the catalysts for buying in to the stock again?

Look for a deal announced for the PC division. Some think this is going to take up to a year. I expect it will be sooner as the HP board is feeling the pressure to make something happen.

Look for a deal to sell the Palm group and its patents. I haven't seen anyone quote the raw number of patents received by Palm in the mobile space but the final price tag for these will likely be high. The price could be close to the Nortel (NT) bid price and that could wake up investors to HP's stock again.

Of course, overly strong earnings would help as well, but that's still likely over a year away.

The bottom line: look again at HP in January. Until then, consider it a falling knife.

At the time of publication, the author had no positions in any of the securities mentioned.

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Why Current Executives Shouldn’t Be Directors

Current executives take board seats to pad their prestige and build their social connections for future jobs. They're also soft on other executives. There are better choices for directors. Yahoo!'s one company that should clean up its act on this.

Read the full post on Forbes here.

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Video: JDSU Partying like it's 1999...

Contributor Eric Jackson says JDS Uniphase (JDSU) is back. It's selling the gear to help telcos keep up with bandwidth demands and has the gesture components powering Microsoft (MSFT) Kinect.

Wed 02/16/11 12:06 PM EST -- Eric Jackson

Stocks in this video: T | Q | ALU | JDSU | MSFT | HPQ | GLBC

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The Problem With Hewlett-Packard's Board

"May I have your attention please?
Will the real Slim Shady please stand up?
I repeat, will the real Slim Shady please stand up?
We're gonna have a problem here.."

- Eminem

Last week, I said that investors should give new Hewlett-Packard (HPQ - commentary - Trade Now) CEO Leo Apotheker a chance. I stand by that statement. But one group that doesn't deserve a second chance is the company's board of directors.

Within the past few weeks, Hewlett-Packard's board has been criticized by Oracle (ORCL -commentary - Trade Now) CEO Larry Ellison, former General Electric (GE - commentary -Trade Now) CEO Jack Welch and New York Times columnist Joe Nocera. On Friday, Ben Horowitz responded to the critics with a long blog post. Who is Ben Horowitz? He started a company called Loudcloud a couple of years ago with Marc Andreessen of Netscape fame. They later sold this start-up to Hewlett-Packard for $1.6 billion. Horowitz is now partners with Andreessen in an early-stage venture capitalist firm. Andreessen is now on Hewlett-Packard's board and played a central role in removing Mark Hurd and hiring Leo Apotheker.

Half of Horowitz's blog post is spot-on. He goes after critics who have said that the company's board was wrong to fire Mark Hurd for the small infraction of fudging expense reports and lusting after some staffer. Horowitz rightly points out: If you don't fire a CEO for lying about expenses, where do you draw the line?

If Horowitz had left his article at pointing out how silly it is for critics of Hewlett-Packard's board to mock the group for firing Hurd, it would have been fine. So what if he's clearly sticking up for his buddy Andreessen? So what if he's probably sold all his stock in the company and therefore has no skin-in-the-game basis for making this argument? I'd give him a pass, slap him on the back and say Ellison and Welch are clearly wrong on this (although I'd guess Ellison doesn't care given what Hurd's hiring has done for Oracle's stock price).

But Horowtiz didn't stop there. He goes on to pat the board on the back for being ethical, far-sighted and doing what's right for the hard-working men and women at Hewlett-Packard, because Horowitz got to know them so well from doing his time there (the way parolees have to do community service) for a couple of years as a condition of him getting his share of $1.6 billion. (I'm sure Ben really thinks he gets the struggles of the working men and women at the company from his long and protracted tenure.)

It was reading this second half of his blog post that made me immediately want to write this response. Horowitz would do well to remember that Hewlett-Packard's board is a badly governed board, which, in the case of firing Mark Hurd, made a good decision (for the reasons he spells out) but is still one of the most truly awful boards in large-cap corporate America.

Were the "ethical" directors doing right by the employees when they approved a plan to unilaterally cut all workers' pay by 5% a couple of years ago and committed that the senior executives would cut their own base salary by 10% but then doubled the total compensation (and perks) for Mark Hurd, Ann Livermore, Todd Bradley and other senior execs? Was that taking the long view?

And don't try to suggest that the board only knew about Hurd's shenanigans with this woman this past summer.

According to Hewlett-Packard, the board fired Hurd after it hired outside counsel to investigate claims of sexual misconduct. It was during the course of the investigation that the problematic expenses were uncovered that led to the firing. Yet, the company's originally filed 2008 proxy statement (which the board approved, so they either knew about it or were completely asleep when they rubber-stamped it) said that Mark Hurd charged almost $300,000 to shareholders that year for "personal meals" plus an additional $70,000 in tax gross-ups. Hmmm. Did the audit committee really think that Hurd (or even Hurd and his wife) could rack up that much in personal food expenses in a year? Even if they did, why the hell were Hewlett-Packard's shareholders paying for it? Either the members of the audit committee knew about what was going on with Hurd back then and chose to do nothing because (let's face it) Hurd was a popular CEO on Wall Street, or they were completely incompetent at their jobs of making sure all expenses are reasonable and legitimate, especially during a year of turning the screws on remaining employees with a 10% forced pay cut.

It was only after Michelle Leder of Footnoted and I complained publicly about these expenses, that Hewlett-Packard magically edited and refiled its proxy, claiming that the expenses were a clerical error.

Let me tell you, no SEC filing from a large company like Hewlett-Packard gets filed without about 15 levels of lawyers touching it first. There is never a mistake in a filing. Everything is there that's meant to be there. My belief is that this board knew stuff was going on a full two years ago -- that, at the least, warranted further investigation. Yet, they didn't act.

So don't even try to hold this board up as these thoughtful wise men doing right by shareholders.

This is a board in which no one seems to own any stock that they purchased out of their own pockets. They all have token shares that they received from options or grants. It's found money for them. If Hewlett-Packard's stock goes up, great; if it tanks (like it has since Hurd left), what do the directors care? It's not their money they lost.

Marc Andreessen (Horowitz's buddy) owns zero shares in Hewlett-Packard. Even after he sold his company to Hewlett-Packard for $1.6 billion in cash and stock a few years ago, he sold all his Hewlett-Packard shares. Even after being asked to join the board, he couldn't find the time to buy a few shares for himself. This is a guy who (conservatively) has a net worth over $1 billion. And he can't buy a few lousy shares? This is shameful. And it's not going to stop until Hewlett-Packard's shareholders (of which I am one, by the way) stand up and start screaming bloody murder.

Don't forget that this is a board with Ken Thompson sitting on it, the former CEO of Wachovia who killed his company and will never be able to work in financial services again because of it.

Hey, members of Hewlett-Packard's nominating committee, I hear that Jeff Skilling of Enron got a bad rap and deserves a second shot at being a director. Pay no mind to the fact that he's in jail. Or what about Chuck Prince or Angelo Mozillo or Dick Fuld or Stan O'Neal? So what if they all destroyed their companies? Those were all flukes. There aren't that many qualified directors around. Let's fill the board with such guys. The hard-working employees deserve these paragons of virtue representing their interests on the board. Thanks for taking such a long view for shareholders by nominating the guy who bought Golden West Financial and its mountain of California subprime mortgages for $26 billion.

I am sure that the hard-working Hewlett-Packard employees would feel much more comfortable about their board if each director committed to investing 5% of his/her net worth in open-market Hewlett-Packard stock purchases. If they believe Leo's the guy to take the company forward, great. Let's see them put their money where their mouth is.

I'm sure Horowitz supports his friend. But, next time, Ben, don't try to defend a truly awful board. Investors need investors representing their interests on the board. They don't need impartial rubber-stampers.

At the time of publication, Eric Jackson was long Hewlett-Packard.

...

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HP Directors Lack Skin in Game

By Eric Jackson, Senior Contributor09/29/10 - 05:59 AM EDT

Stock quotes in this article:HPQ, ORCL

By the time this article appears, we will likely know the next CEO of Hewlett-Packard(HPQ_). [Actually, we didn't find out yesterday.]

And leading the committee who selected the new CEO is Silicon Valley wunderkind Marc Andreessen. Andreessen was the public face of HP when it ousted former CEO Mark Hurd in August (after granting Hurd an estimated $35 million severance package to get him through in between jobs).

When HP and Oracle(ORCL_) crossed legal swords after Hurd became Oracle's next co-president 30 days after leaving HP, it was apparently Andreessen who called Larry Ellison to smooth things over.

HP shareholders might be surprised to learn, however, that Marc Andreessen owns exactly zero shares in HP. As an HP shareholder, I'm very disappointed that Andreessen and most of his colleagues on the HP board haven't dug into their own (deep) pockets to buy some HP stock.

I'd prefer feeling that my representatives on the board feel the same pain that I do when the stock tanks. For this reason, I've recently filed a shareholder resolution with HP to adopt high stock ownership requirements for all directors. I hope that HP will allow its shareholders to vote on this matter at the spring annual meeting.

Long-term shareholders have been disappointed in HP's stock returns relative to the S&P 500 index return over the last decade. As of Sept. 22, 2010, HP's 10-year stock return was 25.14% vs. -22.64% for the S&P 500.

Over that time period, HP's board has been criticized for lax governance practices, including (1) the recent decision to oust Mark Hurd for questionable behavior, while still paying him a rich severance package, (2) the decision to use "pretexting" to gather information on a Wall Street Journal reporter and some of HP's own directors in 2006, and (3) the decision to pay Hurd $98 million in total compensation (before severance) for the three years prior his departure even though HP's stock return for the three years prior to Aug. 6, 2010, was -2.33%.

The Corporate Library, a corporate governance ratings firm, has consistently rated HP's board as "high risk" for its inability to manage incentive compensation. Nell Minow, co-founder and executive editor of The Corporate Library, has called HP's board "a serial corporate governance offender."

I believe that HP's outside directors would be more vigilant and effective monitors of management, as well as better judges of effective compensation packages (including executive perks such as personal use of corporate aircraft, personal travel and meals expenses, and gross-ups at the expense of shareholders for these executive taxable benefits), if all of them owned a significant equity stake in HP which they had to dig into their own pockets to buy, rather than being granted stock or stock options.

........

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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How Microsoft Can Avoid the HPQ Trap

By Eric Jackson
RealMoney Contributor
9/2/2010 5:00 PM EDT
Click here for more stories by Eric Jackson

Earlier this week, Hewlett Packard's (HPQ - commentary - Trade Now) board announced it was undertaking a $10 billion stock buyback. It plans on spending $3 billion of that this quarter. It only has $14-15 billion in cash on its balance sheet. And don't forget, it has just snatched 3Par (PAR - commentary -Trade Now) from the jaws of Dell (DELL - commentary - Trade Now) for $2.4 billion.

Investors cheered the news of the buyback. On the day of the announcement, an otherwise dismal trading day (unlike yesterday), HP was the only positive stock in the entire S&P 500. Wouldn't this suggest that buybacks are a great way to increase shareholder value? Well, to answer that question, in my view, you have to ask: great as opposed to what?

Of course, HP's decision to spend a big wad of its cash on buying its own stock is much better than what it was doing previously, namely:

Nothing, letting cash accumulate on its balance sheet, and

Trying to buy a company at a 200% premium.

Buybacks are also preferable to paying an enormous one-shot dividend to shareholders, as Microsoft(MSFT - commentary - Trade Now) famously did a few years ago when it shelled out over $3 a share. Why should shareholders hold on to a company's shares after they've gotten their lottery-ticket bonus? Should they hang around and hope that the lucky lightning will strike twice?

A much preferable alternative, which HP should have considered -- and which Microsoft's board still has the chance of choosing -- is to dramatically increase the regular quarterly dividend. What am I talking about? Isn't this all financial engineering? Stock buybacks versus dividends? Next, surely, I'm going to be talking about Modigliani and Miller and ideal capital structure?

Well, that is mostly likely the reaction of Microsoft chief Steve Ballmer and many senior executives at S&P 500 companies when this topic comes up. I'm sure Steve Ballmer becomes more frustrated than most on this topic, because he must believe that he's tried to do the right thing in the past to appease shareholders -- that famous one-time dividend and many buybacks and dividends -- and it hasn't worked.

....

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Too Much Cash on Hand

By Eric Jackson
RealMoney Contributor
8/31/2010 7:45 AM EDT
Click here for more stories by Eric Jackson

I've been asked by several people over the past week what I think of the battle going on for 3Par (PAR -commentary - Trade Now) between Dell (DELL - commentary - Trade Now) and Hewlett-Packard (HPQ -commentary - Trade Now). I'm convinced that it's a great thing for 3Par shareholders and equally convinced it will be a bust for the shareholders of the company that wins 3Par. Even for the losing shareholders, the whole battle is likely a sign of trouble ahead for their company.

Let's face it: A month ago, few of us knew that 3Par existed. I remember the company from a decade ago doing data storage up in Seattle. That was about it. I didn't even know it was still around -- let alone that the company would be so sought after.

Most of the market was in my camp, which is why the stock was trading around $10. In the days after Dell's $18 bid for 3Par, there were snickers about the steep price they were paying -- a whopping 80% premium, which made Intel's(INTC - commentary - Trade Now) recent take-out of McAfee (MFE - commentary - Trade Now) at a 60% premium seem like a bargain.

That 80% premium for 3Par has turned into a 200% premium with HP's most recent bid. Most of us don't know too many 200% bids, so we have no basis for comparison. We do know, however, that most 50%-plus premium acquisitions end up destroying value at the acquiring firm.

I don't know 3Par's product offering in depth, but it seems clear that Dell is motivated to do the deal in order to beef up its storage offering to compete with International Business Machines (IBM - commentary -Trade Now), EMC Corporation (EMC - commentary - Trade Now) and Hewlett-Packard, while HP is trying to keep Dell on the outside looking in.

Some have said that 3Par is a "pimple" for both HP and Dell, meaning that the company is so small that it doesn't matter that each is paying so much. That's really not true. They've both got 3Par up to a $2 billion market cap, giving it a cool 236x enterprise value-to-EBITDA ratio. That's not insignificant for a $90 billion HP and a much smaller $23 billion Dell. Also, remember that HP has only $14 billion of cash and Dell has $12 billion of cash. 3Par will be meaningfully dilutive to whichever company wins.

....

[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Never Discount the Grumbling Workers

By Eric Jackson
RealMoney Contributor
8/17/2010 7:30 AM EDT
Click here for more stories by Eric Jackson

The whole Hewlett-Packard (HPQ -commentary - Trade Now) affair continues to make the business pages look like Us Weekly, with new details having emerged over the weekend. It seems former CEO Mark Hurd settled his sexual harassment case with his one-time dinner companion and HP marketing person the day before HP's outside counsel was set to interview her for the first time. As a result, Hurd lost the trust of the board, which felt as though he was acting to limit what details they could learn from her.

Setting aside these more salacious details, I thought the most interesting new information came from Joe Nocera of The New York TimesFriday. In his column, Nocera suggests the real reason Hurd was shunted aside was that he'd lost the trust and respect of the HP employees, and that charges of sexual harassment and inflated expenses merely masked that fact. Nocera illustrates this with some damning faint praise for Hurd from analysts and HP employees, both former and current:

• "He was a cost-cutter who indulged himself."
• "Mr. Hurd cares about one thing, how much money is in it for him. As an HP employee I see it every day. We don't have the tools to do our job, but he isn't doing without anything and doesn't care."
• "He didn't have the support of his people. . . . he seemed to be the only one benefiting from HP's success"
• "I was delighted [to see Hurd go] ."
• " . . . he lacks the moral character to be CEO."

I believe these latest revelations show board did lose trust in Hurd, thus providing reason to suggest he move on. However, I also believe Nocera has put his finger on a critical point: namely, the depth of HP employees' resentment toward Hurd for well over a year. About a year ago, for instance, I wrote about my belief that Hurd was not such a great CEOas what was portrayed by Wall Street analysts and investors -- and I remember being very surprised at the immediate and strong reaction I got from then-current HP employees. They were all united in their antipathy for Hurd.

They complained about how he'd cut the business to the bone but didn't have any ability to grow the company's revenues. They talked about his hypocrisy in forcing 5% across-the-board paycuts while doubling, tripling, or quadrupling senior executives' total compensation in the same year. Most of all, they complained of Hurd's total inability to connect with HP employees and a disregard for the vaunted "HP Way" of the past.

....

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Steer Clear of HP Until Next CEO

By Eric Jackson, Senior Contributor08/11/10 - 05:11 AM EDT

With Mark Hurd out as the CEO of Hewlett-Packard(HPQ), many are trying to argue that the stock is a great long play here trading at $42. I think you're better off steering clear of it for now until there's greater certainty about what's going to happen with the next CEO.

In the aftermath of the surprising departure of Hurd on Friday, and the 8% drop in the stock on Monday, some HP bulls have been stating that now's the time to get a position in the stock. Their argument goes as follows:

• HP is a great franchise with many solid businesses. It's bigger than Mark Hurd.
• It's cheap. It trades at 8 times current year's earnings and 9 times next year's.
• Since the stock has really performed well in the last few years, you can continue to rely on it being a steady performer in the years to come.

I agree that HP has a good set of businesses that are market-leading. There are several scenarios I could envision in which it will hire a great new CEO who is able to ramp up this company and its stock price in the coming years. We could well look back on this moment in time and say it was a great time to enter the stock.

However, there are way too many question marks and risks hanging over the company at the moment to jump into a long position. The risk/reward -- as of today -- still strikes me as unattractive to get long the stock. If they make a bad hire as CEO, the stock could be an attractive short opportunity.

So, here are the reasons for not touching HP at the moment:

• HP has solid positions in its markets today, but many of those markets (like PCs, printers, and technology services) could well see a drop in business in the next few years if they're managed poorly.

  Now that Hurd is out of HP, the HP bulls are saying the company is bigger than Hurd. Yet, when Hurd was around, they only wanted to talk about HP as if he was the only employee at the company. Hurd is all about execution, we used to hear them say. So, if Hurd is now gone, how will HP execute?

  Companies are more than their leaders but they model themselves to their leaders and they drift with no leaders. We're in a drift-zone until a new CEO is announced and that took seven weeks after Carly was sacked.

• The stock may be cheap relative to others but what is most important for any new investor in the stock is that question about whether it is cheap today relative to where the stock will be a year or two from now. If HP bungles this transition and squanders its lead in several of its businesses, the stock could easily drop another 20%.
• HP's stock actually hasn't performed well recently. Investors only think it's performed well because of the Mark Hurd "halo effect" that's gone on -- think of it like a "Vulcan mind trick."

  As I said in my article on Saturday, HP's stock went up 137% in the first 2.5 years of Hurd's tenure but dropped 20% in the last 2.5 years. Over the same most recent 2.5 years, IBM's (IBM) stock went up 20%. If you think you can always rely on HP to deliver stock growth, you're wrong.

But let me emphasize the top three reasons for not owning HP at the moment:

• We have no clue who the next CEO will be. I'm pretty sure Todd Bradley will be the top internal candidate, although Ann Livermore will get consideration. I'm sure they'll also look at some outside candidates, too. My guess is that they'll pick Bradley as a safe choice but I'm not convinced he'll be a savior for the stock. They could hire another Carly -- heaven forbid. Do you want to put your wealth (in the form of HP stock) in the hands of this board to do the right thing?
• When you cheat on the small stuff, you tend to cheat on the big stuff. Although some Hurd apologists and friends say that HP is making up the whole expense-gate issue to avoid the bad press associated with a sexual harassment, the fact is that he reported charging $243,000 in personal meals to HP shareholders in 2008 and then had the temerity to demand that he be grossed up another $75,000 so that he wouldn't owe any taxes to the IRS on that benefit.

  The current expenses allegations that the board used to unanimously ask him to resign are entirely consistent with those reported facts. What it tells me is that this is a guy who has entitlement issues: $43 million in total comp in 2008 wasn't enough for him. He also needed every last penny of expenses covered for him -- even when they were for personal expenses.

  I've tended to find that people who fib about the small stuff tend to fib about the big stuff -- like all the micro (and legal) decisions that go into managing the numbers every quarter. We might have a few more dead bodies which will soon wash ashore from the EDS, 3Com and Palm acquisitions.

  I smell one-time charges coming from excessive earnings management that might have gone on over the past three years. Usually, when a new CEO comes in, once they get a sense of the books and how the past regime has run those books, they like to put everything into the kitchen sink so they can free themselves from the burdens of how they've done things in the past.

• Who's going to finish the job integrating the EDS, 3Com, and Palm acquisitions? The master integration-and-execution guy is gone. We're going to see if the rest of the team is up to the task. These are all big and complex companies. It will take real work to integrate them successfully and the Palm group might never be able to deliver new products to captivate the market's tastes.

  Is this the new stream-lined HP or the old bureaucratic HP that's never really changed since Carly? I think it's likely there will be more charges ahead.

The HP bulls like to point out that the company raised full-year guidance when it announced Hurd was leaving on Friday. I'm surprised it also didn't announce that it was doing a stock buyback. This upped guidance doesn't do anything to change my view at all. HP's been sandbagging - precisely so it could up the guidance when it needed to (as it did in reaction to this scandal).

In my view, this stock won't trade on rest-of-the-year guidance but as for what its earnings will be in 2011 and 2012, the jury's still out on that.

Do you trust this HP board to be on the ball and hire a great new CEO? Take a wait and see approach.

........

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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