It’s entirely possible for two companies to operate in the same business, Cramer said Monday, “and still have nothing in common.” Just look at Dell and Hewlett-Packard.
Cramer compared them by looking at their recent acquisitions. Hewlett-Packard in 2008 bought Electronic Data Systems for $13 billion, allowing it to cut costs and expand into the lucrative consulting business. At the same time, Dell today announced that it would pay a 68% premium for Perot Systems , “a crummy little information-technology company,” he said.
Here’s what Hewlett-Packard got in its deal: Beyond the synergy savings, the company bought EDS, one of the largest consultants, for 60 cents on the revenue dollar. Also, Hewlett-Packard moved away from the tough hardware business and into services, which is more stable and offers more recurring revenues. In fact, recurring revenue now makes up 40% of HPQ’s sales, and that number’s heading to 45%. Lastly, EDS offered the chance to expand overseas, and now Hewlett’s 62% international. The acquisition is paying off – last quarter alone the division saw nearly 80% sales growth year-over-year.
Now compare that to Dell’s buyout: The company paid $1.60 per revenue dollar, and the deal will be dilutive until 2012. Perot fetched $30 a share, a price the stock hasn’t reached since the height of the tech bubble in 1999. Not to mention, Dell will barely see a bump in its services business. Instead, hardware will remain 85% of sales. And revenues declined in all three of Perot’s main segments: Health care was down 9%, commercial down 20% and government down almost 4%.
Analysts may applaud Dell’s latest acquisition, but Cramer will not. He wondered why the company didn’t branch out, trying maybe for Palm as a play on the mobile Internet. But this lack of vision on management’s part has cost Dell 5% of its market share since 2005, while Hewlett-Packard has gained 5% in that time. The main reason? HPQ CEO Mark Hurd took the reins four years ago.
“There used to be a time when Dell was indeed a great company,” Cramer said. “It dominated the PC industry for years, but I think it got fat and lazy.”
For that reason, he recommended viewers buy Hewlett-Packard, especially ahead of its Thursday analyst meeting. But Dell, he said, is a sell, sell, sell.
Cramer's charitable trust owns Hewlett-Packard.
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