In announcing that it would take a write down of $8 billion in the third quarter for goodwill impairment of its enterprise services business, Hewlett-Packard Co. acknowledged what many in high-tech already suspected: HP grossly overpaid when it shelled out $13.9 billion to acquire EDS Corp. in 2008.
According to the Wall Street Journal, the charge is expected to be one of the largest ever for a U.S. technology company. HP is now expecting to report a GAAP net loss of $9 billion, the largest in the company's history.
It's the latest in a serious of recent blunders for what many consider to be the original Silicon Valley company. The once proud and forward-thinking pioneer has in recent years been plagued by scandals and bad decisions, including the 2006 "pre-texting" journalist spying scandal, former CEO Mark Hurd's 2010 resignation following claims of sexual harassment by a contract employee and the $1.2 acquisition of Palm Inc. that same year.
Some would add other items to the list. Despite the fact that HP remains the No. 1 seller of PCs worldwide, many believe that its 2002 acquisition of Compaq Computer Corp. was a blunder. (Certainly, the company's big announcement last year that it would look to spin off its PC business—which was subsequently reversed—would not be labeled a shining moment.) Then there was the TouchPad, the media tablet that HP brought to market last year with much fanfare, only to pull it all together seven weeks later.
Regardless of what you would and wouldn't put on the blunder list, it's clear that the EDS acquisition can now be considered another black eye for the once proud Silicon Valley stalwart.
In the pages of the EE Times Forum and elsewhere, HP is often raked over the coals by engineers as an example of technology giant that traded its founders' ideals and belief in innovation for a short-sighted focus on quarterly earnings and keeping Wall Street happy. But the truth is that HP is hardly alone in that.
The computer industry has been undergoing a breathtaking consolidation race which has altered the fortunes of many Silicon Valley companies. It has driven Cisco to get into servers and Oracle to buy Sun. The whole industry has gone from salad days to razor-thin margins very quickly, and HP is perhaps the biggest example of good sense—and, sometimes, good values—getting lost in the rush.
HP President and CEO Meg Whitman—who took the helm just over a year ago after the board of directors dumped former CEO Leo Apotheker—remains relatively early in her term (though she has been at the helm nearly as long as Apotheker). Clearly, she wants to get painful moves out of the way to pave the way for better days—hence layoff of 27,000 workers in May and the massive third quarter write down. She has set low expectations for HP's growth in the near term and been clear that a full-scale turnaround will take years.
HP is far from the garage-based startup of its roots. The company is a massive multinational corporation that did $127 billion in sales last year. In searching for new avenues of growth, HP has proved more than willing to reach for its wallet. But HP's recent track record in this regard is poor. The company seems to buy the wrong companies at the wrong times—and for too much money.
Large-scale layoffs in recent years to bolster the bottom line—including the May jobs cuts—have drawn the ire of engineers, hammering home the point that big money acquisition gaffes have real-world consequences.
During HP's string of missteps, many have harkened back to the idealistic image of the company's founders, William Hewlett and David Packard, in an attempt to make the point that HP has somehow strayed from the values and ideals at the core of its beginnings. What would Bill and Dave say?
It's an interesting question from a nostalgic point of view, but it's mostly irrelevant. Sadly, Bill and Dave are no longer with us, and both the HP that they knew and the world it operated in are gone. The more important questions are forward looking. What is the future of HP? Are expensive and ill-fated acquisitions followed by mass layoffs the new HP way? Or will Silicon Valley's original company find its footing to create a future that is worthy of its past?
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