VAL9000

rranjan, I think you're probably right about that. But since they're not doing that and the stock got slaughtered, is HPQ a good deal today at 6.1 P/E? That's remarkably cheap. The PC business (PSG) is responsible for $2bn operating profit and $40bn revenue. Extracting that and putting a market price on it, that business group is worth at least twice as much as Lenovo ($300mm profit on $20bn revenue). Lenovo also does phones so it's not a direct comparison, but the numbers work out ok. Lenovo trades for 6.5bn, so let's say PSG will sell for a conservative $12bn (that's a P/E of about 8, in line with all of HPQ last month). The Autonomy deal is priced at $10bn and will bring in about $350mm in operating profit. So, adjusting for these two transactions, earnings = ($12,000 + $350 - $2,000) = $10,350, net cash goes up by $2bn (PSG - Autonomy). After tax earnings are now roughly $8,280. This is now a P/E of about 6.6. Plus you get an extra $2bn cash on the books. A P/E of 6.6 is a pretty significant discount to future earnings power, wouldn't you say? To achieve a P/E similar to IBM or Oracle (14-16), either the earnings would have to drop by 50% and the price remain the same, or the price would have to double. Just some food for thought... (And I can't resist a good valuation discussion :D)

Uccmal - Fully agree re: Irwin Michael and a good number of his ideas. I've picked a few dogs from his picks. I think Seaspan is the only one that hasn't blown up in my face. Value Investing for me is all about understanding value first and then deciding against price. This is a science followed by an art. I think of the science of value as how close you are to cash in the bank. $10bn in cash on the balance sheet is easily valued at $10bn. As you get further away from cash in the bank, the value of what you have needs to be estimated and that's best done in a scientific manner. Estimates of discounts and premiums in relation to historical, current, and future financial statements are what can give you a comfort level on intrinsic value. Some of this is easy (short term investments or high turnover inventory) and some is really hard (value of Coca Cola's brand, value of future earnings, value of the iPhone business in 2007 or in 2011). When you get better at this, you are more able to calculate value. I think I'm 5-10% good at this. Meaning I think I can improve by a factor of 10-20x. The art of value investing is in deciding when to buy or sell. When is the market signalling that you should buy a security? It's not a scientific decision. It's more of an art form and like any art form it can't truly be perfected. It's all about style. My style today is akin to a concentrated hoarder. I buy the same security too early and too often and I rarely sell. My investments and I are long-time friends. I think that my style could be improved with more patience on the buy side. I'm working on this. Like any art form, having the discipline to practice and improve will lead to mastery.

The HP board and Apotheker are catching heat from all sides. Nothing positive being said in these three opinion pieces: Financial Times: "HP should have avoided a big bang" http://www.ft.com/intl/cms/s/0/f68ef02a-ce3b-11e0-99ec-00144feabdc0.html#axzz1WQCgToj9 Wall Street Journal: "H-P's One-Year Plan" http://online.wsj.com/article/SB10001424053111904787404576535211589514334.html New York Times: "For Seamless Transitions, Don’t Look to Hewlett" http://www.nytimes.com/2011/08/27/business/for-seamless-transitions-at-the-top-dont-consult-hewlett-packard.html?_r=1&scp=2&sq=apotheker&st=cse

Myth, it's good to be back. Except for the drama on that other thread :P I can't say that the argument around keeping PSG is really there for HP. Sure they could have handled it differently, but I'm not sure the outcome would be any better. I like decisiveness - compare Apotheker to Bartz of Yahoo. I read this in in an opinion piece in FT today: "Even if the new strategy is vindicated, which it may eventually be, he needlessly alienated investors by thrusting so much unpalatable information and future uncertainty on them at once. He should have taken things steadily rather than making a big bang." (http://www.ft.com/cms/s/0/f68ef02a-ce3b-11e0-99ec-00144feabdc0.html#ixzz1W3elwn74) Since when are coddling and message management the way to run a public company? This argument seems patronizing to investors. As though we can't handle ourselves in the face of changing business conditions. Oh I found this, too: http://www.zdnet.com/blog/btl/ibm-reclaims-server-market-share-revenue-crown-in-q4-says-gartner/45334 As Michael Dell said, IBM dropped to 14% market share but he left out the part where they take 36% of the revenue. This business model is looking better and better for HP. Myth, with regards to your point about annoying HP's customers, well, that's the reality for everyone else today. Nobody other than HP sells enterprise software, servers, and PC's. Dell is the only major server vendor that also sells PC's at volume. I credit Dell's model for what it is: a great business model. Can HP's approach really compete with Dell? What would it take HP in dollars and headaches to get there? As rranjan points out, it's not going to be easy to be a bigger player in the software market, but it has to be easier than trying to make a mint out of the PC business in the face of Dell and all other Asian manufacturers. Maybe I will buy some HPQ after all. :D

Hey guys, I have a question about this. From the perspective of BAC, how is this any better than just offering $5bn in common equity? I see the WEB halo effect, but beyond that I can't see how this is a relatively good deal for them, or for common shareholders. I see the same level of dilution as common (with the warrants), but with a pricier yield to service, a more senior form of capital above common and a redemption fee of $250mm. I also think it's a little bit strange that BAC is resorting to a capital raise at this time. They've been talking about how well capitalized they are for the past couple months. Market's gonna market and screw around with your stock price, but this seems like an extremely expensive bit of PR. Thoughts? I feel like I'm missing something fundamental.

Tom, agreed. It's not a zero sum game. This could be a good move for Dell and HP. Dell is right about the market share and that makes sense. But where he sees their server market share going down down down, I see IBM's profits going up up up. Which of these metrics is more indicative of a good strategy?

Sorry to derail this Dell thread with more HP talk, but the relevant audience seems to be here :) I'm not so convinced that HP is making a strategic blunder. The PC business is their worst performing line of business, with an operating margin of 5.9%. Their top line operating margin is 9.8%. Now when I look at IBM.. they sold off their PC business back in 2005 while enjoying a top line operating margin of 10-11%. Since then, they've boosted this margin up to 18% or so in 2010. It's been a bit choppy but there's a clear uptrend there. HP appears to be following Oracle and IBM's model: enterprise software plus enterprise hardware. The PC business has awful economics. Palm was a stupid purchase. These are both sub-optimal places for HP to focus its energy on. Software and services are a much better business to be in. I'm not applauding the purchase of Autonomy because I don't know much about them, but I think the strategy has merit. That said, there are easier investments for me to make at this time. I'll be watching HPQ as the story unfolds. (No position in HPQ or DELL)