According to our research, we are able to highlight several missteps of HP in allocation of financial resources. We believe, the struggling ,HP facing today, has its roots back in 2001 when HP made decision to spin off scientific instruments, semiconductors, optical networking devices, and electronic test equipment for telecom and wireless R&D and production to another company Agilent Technologies (that nowadays facing a big success). The company narrowed down its product lines and invested all resources in computers, storage, and imaging. In our opinion, HP was influenced by groupthink, since all its direct and indirect competitors (IBM, Microsoft, Google , Apple etc) spank on computer and software field. The company gave up its original objective of being diversified. Therefore, HP chaotically started acquiring companies in computer industry.
PROBLEM# 1 OVERPRICED ACQUISITIONS
Controversial Compaq merger
On September 04, 2001, two leading players in the global computer industry - Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) - announced their merger. HP was to buy Compaq for US$ 24 billion in stock in the biggest ever deal in the history of the computer industry. The stock markets reacted negatively to the merger announcement with shares of both companies collapsing - in just two days, HP and Compaq share prices declined by 21.5% and 15.7% respectively. Together, the pair lost US$ 13 billion in market capitalization in a couple of days. In the next two weeks, HP's stock went down by another 17%, amidst a lot of negative comments about the merger from analysts and the company's competitors.
Acquisition with Autonomy
$10.2 billion acquisition of Autonomy, a U.K.-based enterprise software company.
On July 31, 2011, shortly before the announcement of the Autonomy acquisition, HP had a market value of $72 billion. Three months later, after the completion of the acquisition, HP had lost $26 billion of its market value, representing a 37 percent decline in its stock price in just three months. Over the next 12 months, the cumulative decline in market value reached $45 billion, representing a 61 percent decline.
Therefore, HP invested billions of dollars in Mergers and Acquisitions, that lead to:
PROBLEM# 2 UNDERINVESTING IN R&D
For the September 2012 fiscal year, HP reported R&D spending of $3.399 billion. HP has been under-investing in research for years now, a factor that no doubt has contributed to the fact that the company is shrinking at the top line. According to statistics, the company underspent its competitors on R&D as a percentage of revenue for the last six years in a row. (32% under spending )
This factor has contributed to the fact that the company is shrinking at the top line. While its competitors were aggressively investing in internal researches and developments, expanding its…