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Does HP Deserve a Do-Over?: Pro

Richard Saintvilus|Contributor
Wednesday, 19 Sep 2012 | 10:36 AM ET
Hewlett Packard
AP
Hewlett Packard

F. Scott Fitzgerald once wrote that “there are no second acts in American lives.” That is also true in the world of business and Wall Street, where companies rarely (if ever) are given second acts or “do-overs.”

But this is what tech giant Hewlett-Packard is asking for, or thinks it deserves, as it is now reconsidering its position in the smartphone market.

In a recent interview, company CEO Meg Whitman confirmed what has been speculated upon for quite some time — HP will re-enter the smartphone market. She was quoted as saying:

“We have to ultimately offer a smartphone because in many countries of the world that is your first computing device. There will be countries around the world where people may never own a tablet, or a PC, or a desktop; they will do everything on the smartphone. We’re a computing company, we have to take advantage of that form factor.”

As an unabashed HP apologist, I’m getting some mixed feelings about this. While I do appreciate the company wants to make preparations for the inevitable post-PC era, it seems we’ve been down this road once before. The result was a disaster.

Now it wants to compete with leaders Apple, Google, and Samsung, the so-called “axis of evil” that currently dominates an already saturated phone market. I’m not sure that is a great business strategy for company like HP, which is in the midst of recovering from previous mistakes.

After all, this is the same cut-throat industry that has left for dead once-dominant powers Research In Motion and Nokia, while leaving little room for anyone else wanting a piece of the pie.

Even Microsoft is finding it increasingly difficult to convince the market that it can produce a phone that consumers love. That it needs Nokia’s help to do it should serve as a reminder that perhaps HP is not prepared to go it alone it at all.

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What’s more, it seems exceptionally bold that HP cares very little that RIM has all but fallen by the wayside after having every advantage in the world as once a market leader.

So HP, which fell flat on its face after its last smartphone attempt following its Palm acquisition, needs to answer some very important questions here: What will be different this time and should Wall Street care?

That might sound harsh, but it appears the company has found a new leader in Meg Whitman who, so far, appears to have placed the company on a path towards a solid recovery.

Moreover, the company has recently been on a shopping spree. Among its recent software acquisitions were 3PAR, Arcsight (in 2010), and, most recently, scooping up Autonomy Software for a little over $10 billion in cash.

In addition to these moves, it has recently put plans in place to consolidate its PC and printing divisions while reducing its workforce — moves the company anticipates will help it save $3.5 billion in expenses over the next couple of years.

But the recovery is not yet complete. Entering smartphones seems grossly premature, if not radically misguided.

I think at this juncture the company’s efforts can be better served by focusing on its recovery and looking for ways to grow its high-margin segments, such as services, networking, and storage.

It must also figure out ways to leverage its recent software acquisitions to synergize not only with its existing businesses, but its cloud strategies — areas where it can certainly dominate.

Smartphones will not be one of them. Not now. Not yet.

—By TheStreet.com Contributor Richard Saintvilus

Additional News: Hewlett-Packard Expands Job Cuts by 2,000

Additional Views: Hewlett-Packard Shares—Cheap Is No Reason to Buy

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Disclosures:

At the time of publication, Richard Saintvilus was long Apple’s shares and held no position in any of the other stocks mentioned.

Disclaimer

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